RIT College of Business Entrepreneurs Conference 2012

>> Good afternoon everyone.
We're just about -- if I could have your attention please.
We're just about to start our keynote address.
I hope all of you have had an enjoyable time so far
in our entrepreneurial sessions.
And before we go any further we've already given some
introductory remarks, but on behalf of RIT
and the Saunders College of Business we wanted
to thank our friends and partners at Toshiba
who sponsored this event and allow all this good interaction
between students, the community and entrepreneurs
and the entrepreneurial support community to get together.
And I would like to give the floor who will introduce himself
and our keynote speaker
to Toshiba's representative Jeff Fasoldt.
[ Applause ]
>> Jeff Fasoldt: Well, good morning.
My name is Jeff Fasoldt, and I'm the Executive Vice President
and Chief Financial Officer
for Toshiba Business Solutions North Central Region
which is headquartered right here in Rochester, New York.
I'm a 2009 MBA alum from RIT's Saunders College of Business,
a very proud alumni of the school.
Also a member of the Dean's Advisory Council and thrilled
to be able to participate as a sponsor in this great event.
As companies and business owners know we're highly vulnerable
where our information technologies are compromised.
This was kind of brought to light very recently
by Defense Secretary Leon Panetta
who has described a potential cyber Pearl Harbor
and the nation's vulnerability to crippling digital attacks.
So hopefully to our rescue is today's keynote speaker Austin
McChord, founder and CEO of Datto, Inc.
Datto, Inc.
is an award winning provider of hardware-based onsite backup
and disaster recovery solutions.
Datto was recently recognized the number one fastest growing
backup and security business in the U.S. by Inc.
500. Now, a little bit about Austin, also a proud RIT alumni.
Austin is just a bit younger than me at 27 years old.
He graduated in 2009 with a degree in bioinformatics.
I don't even know what that is.
That's why I was in the business school.
I'm not sure what that was.
He came up with this business plan idea while he was a student
here at RIT.
Took some time off.
Went back home to Newtown, Connecticut, worked out his idea
in the basement of his parents' home.
And he actually ended
up finishing his degree online later from RIT.
So fast forward from that point three years.
Datto now boasts $8.7 million in revenue last year.
This year they're going to hit about $30 million in revenue.
Their employment is growing like crazy.
They're up to 136 employees currently.
And Austin has not forgotten his RIT roots.
He recognizes the talent pool that we have here at RIT,
and he offers internships only to RIT students.
His company provides housing near their home office
in Norwalk, Connecticut.
So how did Austin achieve his success so quickly
and at such a young age?
What advice does he have to give for future entrepreneurs?
Join me in welcoming our guest speaker Mr. Austin McChord,
founder and CEO of Datto, Inc.
[ Applause ]
>> Austin McChord: Good morning.
So, yeah, I guess let's get started.
As he said I'm Austin McChord.
I'm CEO of Datto, Inc.
It's highly improbable that I'm talking to you here today,
especially if you look at my history with RIT and sort
of any part of my academic journey.
This fantastic number right here happens
to represent my graduating GPA.
[Laughter] So certainly when you look
at that number right there it's pretty hard to imagine
that I would be here talking about something I built
and where it's going and how I got there
and how you can do it, too.
But I have come a little bit of a ways.
Currently most recent valuation for my company is
over $100 million, and the company continues
to grow like crazy.
So I think the question that really you guys want me
to answer is honestly how did I get here?
How do I go from the 2.2 GPA to running a $100 million business?
And how did I do it in five years
which was also pretty ridiculous?
And I think actually it's some unusual personality traits
that I had that helped me get there,
and they might not be what you expect.
So [laughter] basically the unusual traits that led
to success in a business sense here,
RIT wasn't that bad to me [laughter].
So shortsightedness, pretty much general insomnia,
insubordination and a whole lot of luck.
And so with that let's see how these came together to sort
of make the story of Datto and how I got here.
So one of the first questions that everybody asks is
where did it start or what is the idea?
And the original idea was pretty simple.
It was NAS or network attached storage appliance.
Everything that you put on it goes offsite.
That was it.
And you have to imagine when I'm starting this this is before
Mozy got acquired by EMC
and online backup was actually really, really expensive.
So it seemed like a pretty good idea.
And I thought the first thing I should do is why don't I go
to talk to my academic advisor about it.
So I talked to Dr. Gary Skuse who was my academic advisor.
And he actually recommended some hardware
and some pieces of how I would do it.
And he also told me that it's highly unlikely
that there's a market for these kinds of things.
So his advice was to focus on my studies
and probably not pursue this.
But if I was going to I should use this weird little thing
that Linksys sold.
So I followed that second bullet there, and it turned out that
that was pretty good advice.
The original idea is if I take this little box
that Linksys made and add some hard drives and do some magic
in Linux it probably should work.
And seeing as school really wasn't my forte
at the time I said let's go for it.
And it also happened to be 2007
and they would give credit cards to anyone [laughter].
So that right there was the beginning
of quite a bit of debt.
But it's, hey, let's get some machines in the basement,
I'm going to need all of that.
But really this is a good example of where
that virginity I had just never done this before comes
into play.
Not knowing how hard the challenge was
that I was going forward with
and not knowing how high the hurdle was that I would have
to cross is actually a huge asset.
And I really had no idea how to approach any of these pieces.
I just went for it.
And kind of dove in and said, alright, well I'll just have
to figure it out when I get there.
But first things first, I need to figure out the product.
But in reality that was huge,
because if I had any idea how challenging the task really was
when I started there's no way I would have started it.
I probably would have followed that third bullet and just tried
to do better at school.
But, yeah, I had no clue.
So that's where it started.
And after eight months of R&D I managed to produce a box.
The cardboard box that it shipped in is that,
and that was actually spray painted white because I hadn't
yet found a box manufacturer who would make them for me.
And the original product had some pretty odd items
in it's build material.
So in shipping a Datto appliance there were two pieces of Lego.
There were some Home Depot parts that you get at a hardware store
if you want to set up networking stuff.
That's a printer label actually on the front that sticks on,
but it looked good when you fold it around corners.
And nearly a full stick of hot glue.
Who needs fasteners, screws and bolts?
Those are hard to source.
[Laughter] So that white, red and green hookup wire
from Radio Shack was all in there.
Yeah, that's fine for transferring USB signals over.
But, yeah, so that was there and you kind
of see the back of it there.
But, yeah, that was the original product.
And it turns out that whole insubordination factor
of just not playing by the rules,
harassment can actually pay off.
And so what I started doing was just going after the tech blogs.
So End Gadget, Gizmodo, these were things that I read
and I knew they covered new products that came out there.
And I literally emailed them every day.
Just will you please review my product.
I'll send it to you.
Write an article about my product and all this stuff.
And it took 90 days of emailing them every day before finally
End Gadget decided to write about it probably
because they just didn't want to see my email
in their inbox ever again.
But they did write about it,
and they said some generally positive things.
And you can actually go Google and pull all this up.
So it's out there.
And then Gizmodo even agreed to review it.
And it turned out that that product
that while it did have Lego in it the reviewers at End Gadget
and Gizmodo didn't notice [laughter].
And they thought that it was actually pretty good.
So that really is what got my business started.
And when those blog articles came out it was pretty crazy
because the phone started ringing
and it was people calling and they wanted
to buy it and the whole thing.
And it was an online store, and I actually was selling units.
It's like holy moly.
So that was really cool.
But then I got lucky, and two months
after I started selling Linksys discontinued the NSLU2
which was the core circuit board that I was using.
So that meant that I could no longer make products anymore.
But that also was actually a pretty good thing.
Because we went back and built the next generation of sort
of the product because I had to.
I had no other choice.
[Laughter] And so the new one -- yes, 80 percent less hot glue.
No parts from Home Depot.
It wasn't based on a processor that I over clocked
and did some other terrible things to.
And actually had some of the features
that our customers wanted such as faster internet and some
of the other settings.
So that was actually really good.
And it was a good thing that I started selling that because
within a year every single one of those Lego infused boxes
that I sold had failed in the field.
And I had to replace them all.
[Laughter] But luckily I didn't sell too many of them.
But the good news is that at the time
by the time they started failing the company had grown much
larger and I could afford to replace them.
So, yeah, that was the next generation of the product.
At this same time when I was just starting and we're talking
about summer of 2008 here,
this was our secure data center in the basement.
[Laughter] So that's where all of your data ended up going.
And this is the scrappy team of people I got
to help me out in summer 2008.
Sort of interesting story.
You've got me, my little brother who was home
or from high school, got Dan a friend of mine,
and then Teal who was this intern
who because I got some local press I guess her dad
like called and told her that she needed to apply for a job
as a startup and that was a good thing and she had to work there.
And so I had Teal [laughter] which is just very interesting.
But that was really the team right there.
And we were soldering boxes together when we needed to
and fulfilling orders, and that's how we started.
We didn't really have a business plan or a whole lot of story.
We didn't research where we should have founded our
corporation or how we should set up our books.
We just sort of looked at the bank balance and read, well,
it's not as bad today as it was yesterday [laughter]
so something must be going right.
So that was kind of the process of how we got
through basically the first year.
And around -- we got in that summer we decided we want
to do an even better product.
And customers came to us and said, you know,
your product would be great except I don't want
to pay this monthly fee.
So we actually went to work on that and decided
to create something that --
[ Pause ]

Anyways, we decided to create a product where it syncs point
to point between two appliances.
We put a whole lot of work into this,
and we thought this is going to be perfect for consumers.
And this is going to be huge.
Everyone is going to want this.
You can backup your photos of your house and they'll go
over to grandmas and vice versa.
And we thought this was a really good idea.
And so we decided the best way
to promote this really good idea was to go to CES 2009
which is the world's largest trade event where Sony, Samsung,
everybody is advertising everything that they're making
for the consumer market.
And I convinced my parents to sort of give me any of the money
that they saved up for down payment on a house
or something like that.
Yeah, please help me out.
And I maxed out the credit cards
that they had given me to the business.
And this is what $50,000 gets you at CES.
So it was a ten by ten booth when you have to imagine
that Samsung has like space the size
of this building at this trade show.
But that's what got us there.
We were out there.
We talked about the whole product,
and we actually got people really excited.
And talked to big companies like Staples and Best Buy
and said you need to carry this in your stores
and this is a great idea.
And we got back from the whole trade show,
and I believe it was Best Buy that called us up,
and they said we're really excited about this.
We want to test market it.
Can you send us two pallets of your product?
How many fit on a pallet?
Can you send us two pallets?
I was like, yeah, sure, when do you need them?
They're like as soon as possible.
I was like, okay, what are you going to pay for them?
They're like, oh, no, no, no,
you don't understand we're not going to pay for them.
You'll send us two pallets and we'll see if people buy them.
And then if we sell those two pallets we might carry your
product in your store.
We're really excited.
Well, I didn't have any money
so that wasn't going to happen [laughter].
You know, at this point the company almost collapsed
on itself because we realized there was no way we were going
to get into this consumer market because no VC person is going
to take us seriously when we've got product
that still has hot glue in it.
And we were going to have a real hard time selling directly
to Best Buy when we have no money.
So it was rough.
We were really on the brink.
I had ran up 89K in credit card debt.
And then managed to get that set
at 29 percent interest by paying late once.
Don't ever do that.
So just servicing that debt was $2,000 a month.
Then I couldn't even pay all my employees easily.
Box the box, miss the market,
and we really weren't making enough money
from the current products that we had to keep moving forward.
So it was pretty rough.
But this is where being shortsighted
and having some insomnia comes in handy.
So luckily I hadn't really gotten married to any idea.
I hadn't built out some business plan
that this was what I was going to do for five years forward.
So I really only thought as far as CES and hope for the best.
And since my plan was kind of a blank slate
at that point it gave me a good ability
to sort of change direction.
And so I started working on a new product.
And in this case I actually looked at stuff
that existed already in the market for businesses.
And we knew it was out there just
from talking to different people.
And we found this other company's product and said,
you know what, this product's not very good.
We can do better, and we can do better really quickly.
Because we need to do it really quickly
because in 30 days I'm not going to be able to pay my bills,
and I don't even want to know what happens.
So we went in that direction and built an appliance
that comes in a black case now.
But basically added some virtualization
and some other pieces and went after this other market.
And that turned out to be the smartest thing that we ever did.
Because this product ended up being a huge success.
Because now we were selling to businesses instead
of selling to consumers.
And to consumers $10 a month or $20 a month is a huge deal
and no one wants to take that stuff on.
Like people just don't want to pay it.
Whereas businesses that amount doesn't matter to them.
And so we can start providing this product and these services
at a price that is just much better
and they're just interested in them.
They don't care the cost of recurring revenue amount.
So that was huge.
It also helped us focus who we wanted to sell to.
Because we realized that nobody is going to trust some,
you know, I guess what would I be, a 23-year old
who hasn't even gotten his degree yet that I'm going
to back up all your data and keep it
in our secure data center.
[Laughter] But instead we convinced other people
to resell our product and said if you resell this look
at how much money you can make?
And once we started focusing on those resellers that was huge
because now we had an avenue.
Rather than we want to sell to consumers or sell
to businesses we were selling to specific resellers and we knew
who they were and it was much easier to target them.
Plus we called them up and it's not, hey,
do you want to pay me a bunch of money for some services.
It's, hey, boy do I have a story for you
about how you can make some money.
And so they were much more willing
to probably not do the due diligence they should have
and also just get this out there.
But needless to say Viridian was a huge success that allowed me
to move out of the basement.
Got a nice office there.
The secure data center became secure [laughter]
so that was definitely a good move.
And we started growing and pretty fast.
Because we came out with Viridian in June of 2009
and went from $25,000 a month
to by November we were doing $150,000 a month.
And we thought, wow, that's amazing.
And really it's a good example of what happens when you decide,
hey, I don't want to follow the rules.
Because how we got there every part
of that we shouldn't have been able to get there.
From you can't beat Amazon at cost per gig, we did,
and we know we do now.
And you can't start a harbor company without a ton of money.
Well, we did that, too.
And you can't sell to businesses without lots of experience.
Well, it turns out all those pieces were possible.
And so that was huge and just not --
if we had read those rules and put them up as walls
like absolute we were certain to fail.
But the fact that we either didn't know them
or didn't care are the huge reasons why we were able
to succeed.
And there's actually a pretty good Steve Jobs quote on this
that I actually really like.
And that's that everything around you
that you call life was made up by people that were no smarter
than you, and you can change it.
You can influence it, you can build your own things
that other people can use.
Once you learn that the world will never be the same.
And that I think is really, really true.
Once you realize that all the people that went out there
and said, oh, there's no market for this or you can't build this
or that's not possible,
they don't have any more tool set available
to them than you do.
And just because they have that or they say that or you hear
that that's the rule doesn't necessarily mean
that that's the case.
And there's always a way around it.
So that's, you know, a big piece in just not listening
to those really helps.
That said, even though Viridian was doing really well you're
never too successful to fail.
We decided Viridian's great,
let's make something that's better.
And worked really hard on this new product called Aurora.
And we worked with other software companies, and we tried
to put something together
that we thought was going to be really good.
But unfortunately we misjudged our customers' environments.
And the product didn't work there because everything
that we had to test it on in our offices was brand new.
So every computer, all this stuff worked great.
But it turns out when deployed in a building
where they've got six year old computers doesn't work.
And a pro tip here,
don't release products that don't work.
[Laughter] I can tell you that that was really rough.
And going through those cycles especially because at
that point we had 16 employees, so these are peoples' families
who are depending on me to make enough revenue
so that they can put food on the table
and they can make all these things happen.
And I'm now selling a product that doesn't work.
And the rough part, too,
is in technology you can then take your old product and say,
no, buy this one it's better and they won't
because everybody needs
to buy the newest product no matter what it is.
So that part was really frustrating.
And then you know that every day
that you're selling this product you're wrecking your reputation,
but you have to stay afloat.
Luckily insomnia to the rescue,
and sometimes you make these mistakes and you've just got
to buckle down and work like crazy.
And decided to start over.
Learned a lot from when our product failed.
And we were able to get rid of a lot of dependencies
and ultimately build the foundation
for everything that we sell now.
And Siris has really been what's driven our growth.
And it is kind of crazy that it's something
that I wrote one week just like I need to get this done
because otherwise I don't know what's going to happen to me.
Making that out there that's kind of what happened.
And Siris has been incredibly successful for data.
We released that two years ago.
And it allowed us to move to some new offices.
It allowed us to win a whole bunch of awards.
So that's really been really cool.
And success allowed us to buy some video walls
and other really fun toys.
So we definitely like that stuff.
And ultimately that's kind of the story
of how I got to where I am now.
And I'm really hoping that the next product I release
doesn't fail.
[Laughter] At current, Datto currently stores
over 15 petabytes of data in the cloud
for customers on six continents.
And in 2012 we're expecting to greater
than $30 million in revenue.
So that's kind of the story of how I got to today.
Obviously, highly abbreviated,
but that's sort of the quick version.
And I think when you look at those traits that came
into play perhaps they aren't as unusual after all
and I just was putting them in the wrong terms.
Because if you were in the business parlance and you wanted
to talk about how they were all positive,
it might look more something like this
which would probably be more normal traits that you're used
to seeing and saying these are the reasons why
we're successful.
But it's a good example how you can take things
that may not be huge assets to yourself
but I say turn them into assets.
And so that's kind of my thoughts on that.
And then, finally, there's a quote that's also driven a lot
of stuff that's kept me to keep pushing.
And they ended up using it in the end
of the video game Mindcraft which just bugs me
because then everybody knew it.
[Laughter] And it's a Mark Twain quote.
Twenty years from now you'll be far more disappointed
by the things that you didn't do than by those that you did.
And I think that if anything that's been true
with my experiences with Datto
that if I didn't make these mistakes, if I didn't jump,
if I actually didn't do any
of these pieces there's no way I would have gotten here.
And while I've made a lot of mistakes
and it's been extremely painful at times,
this success far outweighs it, and you just have to keep going.
So that's kind of the story.
And now I really want to open it up to questions that I'm happy
to answer really anything because I've gone
through the full gamut from the beginning to how I got to today.
So I'm serious, ask away.
>> How did you come up with all the creative names
for your products?
>> Austin: We had contests in my company.
[Laughter] Yes?
>> So you had products that were successes,
you also had some that failed.
Did you do base testing or how did you do testing
on the market before you launched them?
>> Austin: So we did the internal testing in our offices,
but we really didn't do very much base testing.
One of the things our product we're able to push updates
to it in near real time.
So we figured, oh, if there's anything broken we'll just put
an update and fix it.
But it turns out that when the core concept
of your product is bad that's not an updatable thing.
>> Do you have a microphone?
>> Austin: Yeah, sure.
>> How do you differentiate yourself from your competition
like other cloud-based backup systems?
>> Austin: So in our case, and I didn't really get into specifics
about what the product does.
But the huge differentiator is that our product is able
to instantly recover systems.
So in the event that somebody is backing up an email server
or a database server and that serve goes down,
our product can instantly become that server.
It takes on average about six seconds before it start bringing
that server up.
And so it's that cycle of being able to do
that instant restore that's so powerful.
And we can do that both locally
because we sell some physical storage hardware, and we do it
in our cloud where we've got that 15 petabytes of storage.
And so that ability is what really separates us
from everybody else in our space, and we're able to do it
at a lower cost with better features
than anyone else on the market today.
Yup?
>> How would you like to be a judge
in RIT's weekend starter competition?
>> Austin: Sure.
That was an easy question.
[Laughter]
>> Give him the date.
>> Austin: Yeah, well, that will make it harder.

[Laughter] You had a question?
You need a Lambo.
>> What?
>>You need a Lamborghini.
I don't have one yet.
[ Pause ]
>> Have you ever had to compete with a data center as large as
U of R or MIT in any of your projects?
>> Austin: With a data center?
>> Yeah. Who have huge computer capacity to do backups.
Have you ever had to --
>> Austin: Typically the customer base
that we work with is much smaller.
But we do do in some rare instances like DR4,
an entire data center facility.
So that's something that we get involved
in where they're looking at a multi-petabyte project.
And those are things that we do.
But our computer capacity ourselves we've gotten
incredibly large.
Just this week I'm going to have to own up
and buy some $360,000 piece of Cisco equipment that's the size
of a microwave just to deal
with how much band width we're continuing to have as we've got
to start aggregating multiple ten gigabit connection.
So, yeah, the scale gets wild.
Yes?
>> I just want to know how did your parents feel
about you slaving like all those nights
that you just focus on your work?
Like did you have time to hug your mom?
[Laughter] Like 90 hours.
Like to say I love you and spend some quality family time?
>> Austin: To be honest it was really hard.
And going through that and at one point I was pushing myself
so hard that I became physically ill.
I think that that's something that actually ends up happening
to a lot of entrepreneurs when they get into it and then --
luckily I was able to realize the majority of it was all
in my head and that I just needed to take a break
and that the world is going to keep spinning.
Because at the time when I had all that debt
and all those things were going
on there was an enormous amount of pressure.
But my parents at first were reluctant then became
very supportive.
And then asked me to repay sort
of every expense I ever had [laughter].
That's kind of the cycle I think is what happens with parents.

But, yeah?
>> You say you have customers overseas.
So how did you expand your sales to the international market?
>> Austin: So the international expansion is interesting.
The first phase of what we did is we set up relationships
with resellers overseas.
So instead of -- we were like we don't know anything
about selling in the UK, but here's a company that does
and is interested in reselling our product.
And so we sort of got them to --
we have a reseller relationship with them.
As our company's grown we realize we're greedy
and we want all the money.
So we're in the process of winding down those resellerships
and establishing a more direct operation there
so that we can capture the full set of the margin.
But the resellers make it easy to get started.
Which way should we go?
>> Whatever you want.
I'm just running.
>> Austin: Try on that side.
You there in the back.
>> So how much, if anything, you did at RIT actually matter?
[Laughter]
>> Austin: I think actually on a broad scale a lot.
So I wouldn't have learned all the programming stuff
that I knew if I didn't go to RIT.
I think that actually being a bioinformatics major
and having a heavy focus on biology
if there's anything they teach you in biology it's
that for every rule there's a ton of exceptions.
And so knowing that all of these rules are breakable,
just like in biology you have to deal with, well,
everything should work this way except when it doesn't.
Knowing that I could be the one
that doesn't that helped me a lot.
So I think that I couldn't have done what I did
without going to RIT.
And while the specific subject matter understanding how DNA
polymerase works probably is not that relevant today to me,
it's still like going through that process
and learning how those systems and some
of those things work was really helpful to when you look
to apply it on a broader scale.
Yeah, in the blue?
>> I guess more of a question for a teacher.
What stops now competition from tapping into
your differentiation?
>> Austin: So, one, we believe we're technologically ahead
of anybody else.
And we know that and we're already working
on next generation of good things.
But the biggest thing that scares me
from a competition standpoint is honestly somebody that's
like could be in this room.
It's not the big company that I'm worried about that's going
to come in and steal my market.
It's a small company that's brave enough to go out there
or to try something completely different.
As my company gets larger everything takes longer
because there's people in my company who will lose it
if I release a product and I haven't written the manual yet.
But in a really small company you can get away with that
and you can iterate faster and you can go
through more cycles faster.
And so it's possible for you to out-innovate me.
And so I have to start thinking
as my company gets bigger further and further and further
into the future so that I know that I'm going to be ahead.
And then the other thing that I take advantage
of is my company is large and we can buy things in scale.
And that's kind of how big companies make life hard
for little companies.
That's where I honestly believe my biggest threat is.
Yeah?
>> Let me ask you a question.
I'm not a technical person, okay,
but I want to start a technical company.
In your experience, obviously you probably know a lot
of companies, I've been told that a lot
of times when you want to start tech companies you know how
to code.
I'm learning, okay?
But that's not what I want to do.
I'm better at other things.
Do you know of people that you've maybe met
or companies you've met where the founder
of the company wasn't necessarily
from a technical aspect or background?
And what was it that that person did in order
to fulfill his or her team of people
that actually build the technical stuff?
>> Austin: So, I think that you don't have to know how to code
to be a technical CEO.
What you need to do is you need to know all the components
of your industry and of your space inside and out.
And so there's points where I started, and I knew how
to code a lot of stuff, but to be honest the people that work
on the code now they're way smarter than me.
And they know it a lot better, and they frankly get mad
when I write code because they're
like this code's terrible.
[Laughter] So you don't need to know that intimately as much
as you need to know all the different pieces
so that you can know basically if you're getting snowed,
and also be there when they get stuck and be
like I know I may not be the most technical guy
but could you possibly look at it under this route.
And maybe still try to provide some value
as that sounding board.
Now, how you find that technical person to be part
of your company that's a challenge.
I got lucky in that I had a friend that I knew
from high school, and he's an incredibly brilliant guy.
But even when he worked one office
over from me our primary mode of communication was IM.
And so he's not really going to be someone who is going
to start a company, but he was looking for something to do.
He was interested and I got him involved.
And, you know, that started a good relationship.
And he's the one that really drives a lot
of the tech genius side on the very low end.
And so it's you've got to find that right person
who has a passion but may not have the skills that you do
so that when you put it together the team is greater
than either individual.
>> So if anyone wants to kick ass, come see me, alright?
>> Alright, in the back in orange.
[ Inaudible Audience Question ]
I mean I think that the exercise
of building a business plan is helpful.
There's clearly some pitfalls that we would have gotten
around early if we had had a business plan.
But at the same time you get six months in and you're going need
to burn that business plan
because it's not going to match reality.
But going through the thought exercise is good.
Like we learned a bunch
of typical MBA lessons the hard way.
So, one, when we started we priced our product based
on cost instead of value.
And so we're like, oh well,
we'll just price it twice what it cost to build us
because that should work but didn't really think about it.
And it actually turned out that when we brought the product
to market it was too cheap.
No one would buy it because they didn't believe it would work
for the price that it existed.
And so then we went and we doubled the prices
and our sales quadrupled.
So that was like a really cool win.
[Laughter] But like if we had built a business plan we would
have understood that and got the right price point configuration
and probably done a little bit more market research
to understand what are our competitors pricing.
And rather than going in and being like, yeah,
we're going to cost 10 percent as much as our competitor, well,
no one is going to buy you because they're not going
to even understand that.
But instead being like, oh, we'll cost 80 percent
of what our competitor cost that would have been smart.
Yeah?
>> What did you do when it became time to stop making boxes
at your parents' house?
>> Austin: Well, mainly I got in a fight with my parents
and told them I'm getting office space,
and they said you're just going to get further into debt
and it's going to be terrible.
But I ended up doing it anyways.
I mean we knew we had enough money to carry the rent,
and we continued to manufacture the boxes ourselves.
So we were actually building them in class A office space.
Like we'd rented some office space
and we were doing it there for a while.
And then we recently had moved them up the road,
and we now have a team of 16 people who do assembly.

Luckily the machines now they're basically when we switched
to that X86 hardware they're basically computers.
So if anybody here has ever built their own computer they
know it's not incredibly challenging.
And we can do it easily and it saves us money.
Yes?
>> As CEO you probably wear many hats,
but when you really started to pick up with business
and started selling a lot
of your product what was primarily your role
around then especially when you were trying to bring
on more employees
versus building relationships out there?
>> Austin: It's really interesting how
that role changes as your company grows.
And so in the beginning I was coding.
And then when I finished the first product I was writing
emails and trying to make a website and making brochures
in programs you shouldn't make brochures in
and doing all those different things
to try to get the word out.
And then like it was that cycle, but then as the company started
to get bigger, like greater than 10 people, you end up starting
to move more into a management role.
And at first I really even didn't like it.
And I thought I'm going to sell it or I want to get out of it.
Really I just personally want to write code, and I don't want
to deal with all this management BS.
But in the end it's like it's interesting because you go
through phases where at first you're like you don't like it,
and I think the reason why I didn't like it is
because I had no idea what I was doing.
And at first when I started coding I didn't know what I was
doing it, but then I became quite proficient at it.
And so then to make that transition again to go
to something it's like crap.
Effectively you're a virgin all over again.
You don't know what you're doing and you've got to learn it.
I probably went through that cycle three
or four different times.
And most recently
as the company's grown past 100 people you realize all
of a sudden that you don't have control of the rudder anymore.
You've got all these people that are out doing things,
and you can kind of tell them which way to go,
but you can't just turn the company around if you wanted
to because everybody is already moving in a direction.
And so getting used to that is just a whole other phase.
And so it's you go through a lot of cycles, and you just have
to be ready to take on whatever it is.
But I think that going very back to your question
like what was it like or what roles did I go through,
I mean at first I was sales and then hired sales.
I guess like when you're small the thing to do is
if you have money to hire someone keep trying
to eliminate your job.
So if you find all day doing customer support then hire
customer support people
so you're not doing customer support anymore.
And if you're doing sales then hire sales people
so you're not doing sales anymore.
And if you just keep trying to eliminate your job
that actually ends up you'll see works pretty well
to help grow your company in kind of a balanced fashion.
Yeah?
>> Do you got like time to like enjoy life?
>> Austin: Yeah, a little bit.
No, I mean when the company was small, no.
But as it's gotten bigger I can leave, and business is going
on right now and everything's operating.
So I can take vacations and it's fine.
And then, yeah, eventually it gets to a size
and you make a sizeable salary
and you can do fun things with that.
[Laughter] Yes, the big hair.
>> You said you were very like inexperienced at first.
What did you do develop your skills?
Were you mostly like dealing with trial and error at first
or like did you seek out any help or anything like that?
Like what did you do?
>> Austin: I definitely -- I tried to talk to other people.
And I think another piece like that as an entrepreneur is
to don't be afraid of the phone.
And especially don't be afraid of other local small businesses.
And it doesn't have to be -- so like I ended up getting a bunch
of advice from the company that made our cardboard boxes.
And I called them up, and they said, oh,
we don't really do runs for under 100,000 units.
And I was like, well, that's not going to help me.
But then I explained to them my project or whatever,
and they were sympathetic.
And they said, hey, you know what,
come to our office, let's talk about it.
We've got some extra cardboard laying around,
we can probably do 10 or 15 boxes for you at no charge,
and we'll see what we can do if you need 100.
And so they got interested.
And you go up there and you have that relationship.
And all of those other little businesses around you had
to start from nowhere at some point, too.
And it's a shared experience.
And so listening to them and talking to them
and building a network of people around you
who have the similar experience or who have had
that experience even if they're not in your industry
at all they can at least give you some advice.
I mean it's not always pertinent.
We tried using SCORE, for example.
I don't know if that's something that you guys know about,
but it's a small business resource.
But they weren't really well suited
to deal with a tech company.
If I wanted to open a deli they would have been great.
But they just didn't have good knowledge there.
Because they're like, well, try this
and let us know how it works out in two years.
And it's like, no, you don't understand,
like I have to change all the time always.
Yes, down the middle?
>> I know you've said a lot
about the identity for your company.
I know you've gone through a lot.
What has been your strength up to now?
>> Austin: I guess it's a passion for the project.
Like I never -- when I started the company I didn't have huge
aspirations that I was going to take over the world
or that that's even the goal in any way.
It's just I started following the thread.
And each new phase gets more and more exciting.
And so that makes me excited to go into work.
And I know all the crazy cool things we have in the oven
that we're developing that we're going to release
and these new projects and how we're growing and all that,
and it does, it makes me personally excited.
The fact that you make money doing it is just an
awesome bonus.
But seeing where that goes and knowing that every day
that you go into the office is going to be different
than the day before is huge.
[ Inaudible Audience Question ]
>> Austin: Mainly because I was just like I'll show them.
So it was kind of.
Yeah?
>> When you get to a point in your business
where you feel like it's potentially going to fold,
how do you mentally get past that sense
of inevitable failure?
>> Austin: I think what you have to do is
that shortsightedness you have to look only at the next day,
only at the next six hours and just look really far forward.
Because you can project out infinite directions,
and at one end it's like I'm going to go bankrupt
and like it's terrible.
And then on the other hand if I project
out I'm the king of the world.
And so you really start looking,
and as things look gloomier just focus on what can I do
to make it better today?
What can I do to make it better tomorrow?
And each step and not look at six months
from now I'm in deep trouble.
Because all that does is it's just going to bring you down,
and then you won't have that passion anymore,
and you'll just want to put your cards in and run.
yeah?
>> How do you train your new employees, say, interns?
How do you plug them into your company?
>> Austin: Well, one of them is right there.
[Laughter] We pretty much just throw them in.
>> When I was hired I was told, "We're going to throw you in the
deep end. I wonder if you'll swim."
>> Yeah.
That's really been the plan is kind of that we push them.
And there's a lot of people who work at the company
who are really passionate.
A lot of the company is really young.
So they're into it and they get involved in that.
We also have an energy drink on tap
which basically just makes people wired.
[Laughter] So like that helps a lot.
But, yeah, so those sorts of things.
We try to make the atmosphere so people want to stay there.
Like you play Xbox on an 80 inch TV sometimes.
Yeah. So we do stuff like that.
We've got a gigabit internet connection in our office
that you can use as you wish.
So when you download as fast as your computer can write data
to it like that's going to be fun, too,
just what you can do with that.
Yeah, in the plaid.
>> When you were new and untested,
how did you make yourself out to be reliable and quality
for your customers in their eyes?
You didn't show them your data center, did you?
>> Austin: No.
[Laughter] Our security regulations do not allow anyone
to see the data center facility.
I'd have to file four background checks just to get you in.
[ Laughter ]

I mean that's kind of, you know,
to some degree you just have to go with it.
And while technically none of that is untrue,
I can set whatever regulations I want for the security
of the facility that happens to be mine.
[Laughter] You know, you just got to work around it.
And when you're very small, yeah, sometimes you've got
to take a little risk.
Yeah?
>> One, what's your exit strategy and, two,
what is your advice to somebody
who really doesn't see an exit strategy yet or does not want
to make an exit strategy yet.
>> Austin: Well, I've never made an exit strategy.
In our case a couple things happen.
So our company is in an interesting position
because we've taken on no VC funding.
So we've bootstrapped it all the way to this point.
And that means that our exit strategy isn't as clear
because if you get with a VC
when they give you money they're going to be the first ones to go
and they know how they're going to get it back.
Like that's part of it.
And they may not even tell you the exit strategy
but they have one, trust me.
And so in our case we get courted a lot
because our company is doing really well.
And, you know, we have some strategics
that we keep conversations with.
But I would say like on the exit strategy point I've got a
certain number that I'd like to get,
and that would make me happy if I could cash
out personally at that number.
And then it's a matter of how do I get the company to the point
that it's over that number?
And then how do I build as many contacts as I can
so who do I know at Iron Mountain?
Who do I know at HP?
Who do I know at Cisco?
All these other companies that might want to buy me,
might want to acquire me, those types of things.
And so then when I get there you can use those connections
and say, hey, look we might be interested in da, da, da, da,
da, can you come check.
And you have that conversation.
I've gone down that road a little bit with a few companies
that actually approached me and said, hey, we really like you,
you know, and I said great.
You know, let's go get some dinner, let's talk about it
and let's see what happens.
And it's free to listen.
And when other people want to talk to you
about stuff you should almost always listen.
Yeah?
>> Have you experienced any security attacks or something
or someone tries to break into your data center?
>> Austin: The physical building?
>> No, maybe not physical --
>> Austin: Because our system exists on the open internet it's
under continuous attack,
the data center and things like that.
We do a lot of work to make sure that that's secure.
We've got very strong password policies and firewalls
and the whole shebang to make that happen.
But I mean it's really par for the course kind
of like any other company would.
The only thing is that we've got
to buy really expensive equipment to do it
because we're pushing 10 gigabits
or basically a gigabyte a second in throughput all the time.
>> Before you took the first steps towards making a business,
what made you decide that this was your project to pursue?
>> Austin: So I actually had a bunch of ideas and decided
that I wanted to pursue a project.
And believe it or not I talked to Richard Demartino [phonetic]
about some of my other ideas.
And he said it will never work.
[Laughter].
>> Did he?
>> Austin: Yeah, he did.
>> Oh, okay.
>> Austin: By the telephone support one.
You may not remember it.

Anyway, so I added a bunch of ideas [laughter]
and ultimately this one seemed achievable and something
that I could do at home and I could get started on.
And so that's kind of what let me in that direction.
But it's also what we sell now is orders
of magnitude more complex than what the original idea is.
And so the systems now protect companies like Toys "R" Us.
That's like an example of a possible client of ours.
So like those types of things, you know,
I wasn't thinking about that then.
You just kind of end up --
you know, you get pulled
by the market a little bit in a direction.
Yeah?
>> Having gone through the financial difficulty
that you went through would you advise taking on a bunch
of debt to fund a venture?
Or, would you not?
If you could go back on it and do it differently?
>> Austin: I think I would advise not being overly
spendthrift, but at the same time I would also say
that I probably overspent.
So when we were in a basement I still wanted everybody
who worked for the company
to have three monitors including a secretary.
So that was overkill.
There were places where I just made some ridiculous choices.
But at the same time when you see people going
out of their way to conserve cash you have to look at it as,
you know, how much -- typically what you end up cutting
against is this will take me so much longer
but cost me X amount less.
And then you've got to think how valuable is my time.
And that's really where a lot of that stuff comes into play
and then you can figure it out.
Now, the debt is certainly an extremely risky way to do it
because if you fail you have to pay it back.
Whereas if you can get venture capital
or seed money they take a percentage of your company,
but if you fail it's their loss.
But they're also more in control of what goes on which could be
for better or for worse.
Yeah?
>>If that invention thing didn't work, would you have invented
something else?
>> Austin: What?
>> That box to box thing.
>> Austin: Oh, if that did or didn't work?
>> That didn't work, would you invented something else?
>> Austin: Well, it did and that's something else.
Suppose the box didn't work and then I made Viridian.
Oh, if Viridian didn't work?
No, I would have been broke.
I wouldn't be here.
[Laughter] So, like I said, luck that's a big part of it.
You do like a big part of it is luck as far
as what I know if you're going to make it happen.
Yeah?
>> Do you have any patents?
Have you ever infringed on any patents and how do you feel --
or do you feel that a patent is even important
to a small company?
>> Austin: I wouldn't overly emphasize patents.
When I first started I filed for a patent.
I didn't have a lot of money so I got a patent attorney
that I thought was expensive and it cost me five grand.
But then I got it back and then they're like, oh,
we'll review this and that.
And by the time they review whatever you're trying
to patent you hopefully will have moved
onto something else anyways
because the patent system is so slow.
Plus it requires you
to basically disclose the full contents of your invention.
And then finally a patent is only as good
as you can afford to pay to defend it.
So if Apple decides that they want to do what you're doing
and you want sue them, that's a terrible journey simply
because even if you find a law firm that says, yeah,
we're going to go after them on it,
it's going to take 10 to 20 years.
And I've been through a couple of lawsuits not
over intellectual property.
They take years and they're painful
and they're unbelievably expensive.
So, you know, yeah, I would say don't focus
on patents unless whatever you have is like amazing,
you invented the next new power source or something.
>> My only issue would be infringing because there's

so many -- like it's almost disgusting the amount
of patents that exist.
It's actually detrimental to innovation.
>> Austin: So in that case there's advice.
For example, Microsoft tells all
of its employees do not read patents.
Do not look at patents.
Do not think about patents.
Just invent stuff.
And you're correct that you're probably
in perpetual infringement.
But, one, if you read the patent
and then do it then it could be willful
or you could have been inspired by the patent.
If you didn't read the patent and you go for it
and you do stuff and you have no idea that this patent existed,
then what starts is they'll send you a C & D or a licensing thing
and they want to license with you.
And then somebody is going to find
out which means you probably have
to have some reasonable level of success for them to find out.
Also, they're not going to sue you
for infringement unless you have money.
Because why would they spend a whole lot of money on lawyers
if there's nothing to get from it.
So the good news is that by the time you get to a point
where somebody wants to sue you because you're infringing
on a patent you have a lawyer.
And then they can negotiate one way or another.
But I think it's those types of things
that are probably really not worth worrying about,
especially because you may decide, oh, I'm going to do this
and I'm worried it's going to infringe on this patent,
but you might get eight months into your project and decide
that this method that you thought
of is not going to work anyways.
So don't ever let that be an impediment to doing stuff.
>> We have time for one more question.
>> Austin: You pick.
>> Who wants to pay me money.
[Laughter] Who has not asked a question yet?
Who wants to ask a question?
Let me grab this.
This fine gentleman back here.
[ Inaudible Audience Question ]

>> Austin: Um, well I did use debt.
Like the $80,000 was debt.
[ Inaudible Audience Question ]
>> Austin: I probably would not have run the credit cards
up that high.
I mean ultimately all
of my expenditures towards CES were what created
that enormous debt load.
Because in reality I had been recently smart
and only acquired $30,000 in debt.
So it was pretty small, but then I wanted to do this big push,
and I thought that was going to change everything
and that ended up flopping.
But a lot of it depends on where you stand.
For me I could tolerate the fact that I knew
that there was going to be debt out there.
Whereas for other people debt is scarier than equity.
But for me equity is scarier than debt.
I don't like the idea that somebody else owns something
that I've done or that I'm doing and gets
to go one way or another with it.
Especially because the VC firms they're in it to make money.
And you are just sort of a side part of that or can become that.
And so that scared me away from it.
>> Well, we want to give you a [applause].
>> Austin: Thank you.
[ Applause ]