The Bootstrapper's Bargain
When Gleb Budman and his team launched the San Mateo, California-based Backblaze in 2007, they promised customers unlimited backup storage for $5 a month. That seemed like a crazy thing for a tiny self-funded company to attempt--the massive amount of hardware required to support limitless storage can cause a cash crunch even for huge companies. Here's how Budman made it work and built a company that expects to have revenue in excess of $10 million this year.
Conventional wisdom says you're crazy to start a business like yours without a major chunk of funding. I assume you couldn't find it.
The team that started Backblaze had done two start-ups before that were venture funded. Both were acquired; both were positive exits. The reason we didn't raise was not because we couldn't find the money.
Then why not?
Funding has definite upsides: It's great to have a salary, an office, the ability to hire employees, and a cushion if you need to pivot.
But the process of getting funded takes a lot more time than you think. Even if you have a track record, a great team, and a great market, it still takes three to six months of your time to actually raise the money. That means your primary job isn't building your products and services and really understanding your customers--your primary job is raising money.
But at least that's behind you once you close a round.
No, because then you have a board to manage and expectations to meet. When you get funded, you need to generate that hockey-stick curve you predicted, which can be a very inefficient use of time and money, since you're now trying to fast-forward.
Most entrepreneurs think of the VC as their customer, but when your survival is based on the VC, you build a company on what the VC will like and not what your real customers like.
We wanted to build a company where the culture was focused on building an actual business whose customers paid for a service, and the business supported itself and was profitable.
Obvious question, then: How did you pull it off?
We committed to working a year without salary. We started in one person's apartment with the understanding we'd get an office in six months. Six months became a year, a year became 18 months, five people became six people...and the guy living there finally said, "Obviously, you guys are not leaving my apartment, so I am." That let us turn the bedroom into our conference room.
We wrote our own software. We created our own servers and storage-pod infrastructure. We started drive farming--buying external drives from retail stores, cracking open the cases, and placing the drives in our servers.
Ultimately we let cash flow generate our growth. As the data center filled up and cash flowed in, we'd buy one more server. We'd watch our cash flow...and buy another.
That strategy assumes you can always get your hands on enough drives when you need them.
At one point, flooding in Thailand caused a massive hard-drive shortage around the world. Costco put a two-per-person limit on its drives, but we got around it by buying hundreds of gift cards with random names and using those instead of credit cards to buy online. Eventually, Costco sent us a letter that said, basically, "We've been very entertained by what you're doing, but please stop." I think a few employees are still banned from shopping there.
But it worked: Today, we have approximately 500 storage pods in our data center; we figure that adds up to about one-third of Facebook's storage capacity.
Recently, you did raise funding. Why?
Early on, we agreed that every six months, we'd stick our heads up and say, "Do we want to raise money?" For a long time, we said no. We thought it would take time away from growing the business and change our culture...until we finally reached the point where it made great strategic and operational sense.
Raising capital allows us to do smart things ahead of the cash-flow curve, but ultimately we will always make sure we are self-sustaining. That's our core culture, and that will never change.