Channel professionals typically use B2B as a reference to the general indirect model, but Austin McChord, founder and CEO of Datto, Inc. gave the term a whole new meaning in his keynote at ChannelCon 2016. In his case, it refers to the way he started his business 8 years ago, in his parent’s basement with $80,000 in debt. By the end of last year Datto was valued at a billion dollars and had become one of the exclusive "unicorn" club according to respected business experts. McCord was named to the Forbes 30 Under 30 list in 2015. His story is more than a millennial CEO running an innovative company, but a lesson in perseverance and good people and processes. What started as a way to get out of his parents’ house has become a prominent player in not only the IT channel, but the business community as a whole. But the early days were quite different.
“When I built my first NAS device, my goal was to build and eventually sell the business for $100,000. I wanted to drive an Audi R8 like Iron Man did.” He tapped friends and family members to help build out the organization, including his brother, a friend and even an intern. They spent two hours assembling a variety of components to create their first official offering, the 100 GB storage device they referred to as the Datto 100. The launch was not as successful as McChord had envisioned. “We set up an online store and expected the money to pour in, but nothing happened. So I set up and account on Amazon and created a profile, and again, nothing happened.”
After incessantly emailing details of the Datto device to the technology press, he finally got one to take the bait, promising to write about it if he agreed to stop harassing him. That was the start, as more publications picked up the story and the sales ramped up fairly quickly. Demand for additional capacity lead the Datto team to design a new offering with more than four Terabytes of storage. When Linksys stopped making the cases they used, they reluctantly switch to making their own computers, as small as possible. “We ended up using a new file system, which is what put Datto on the map several years later. That was a real ‘wow’ moment in our history.” They had learned to innovate and expand their portfolio, and were taking steps that would eventually move their basement operation into large data centers.
That’s also around the time MSPs started asking about a channel program. “After about the 15th call, I told them it would be launching in a few hours. It sounded like a good idea and, in fact, it ended up being so successful we left the direct sales space within 3 months.” That also marked another milestone in Datto’s History: they moved out of basement and into a professional office building.
“Early on, I wanted to hire one of my friends but he said no since we were still running our servers out of a basement. So I took his advice and moved everything into a data center.” All their information fit into a few racks at first, but they scaled quickly and now maintain more than 300 between centers in multiple data centers in the US and in other countries.
It seems the company’s expansion was almost too fast. “We actually grew our sales so fast that the bank froze our funds, assuming that we must be committing some sort of fraud. We called our accountant, who got all worked up about the situation and was planning to do something about it. Unfortunately, he died later that day and we then had to explain how that happened. It was crazy, but we just had to persevere despite some wild challenges.
The next step for Datto was moving their office and 25 employees to a new facility that could accommodate 100. Today, they utilize four floors in the building. Their employees are encouraged to work hard and have fun, and many tinker with unique inventions during their free time ̶ including a computer built and stored in a fish tank filled with mineral oil (he never did explain why).
“The single biggest turning point in Datto’s history was when Hurricane Sandy struck in late 2012. With 80 mph winds outside our Connecticut offices, everybody came in to work to help and to be there for our customers. We crossed our fingers that all the technology would work, and it did. Every company (whose data was in their servers) was covered across the board. That turned out to be more rewarding than anything else I’d ever done in my life. We helped a lot of people. We were more than a startup, were offering a service and it was our duty to be there for our customers. My team felt that way, too.”
As with any successful business, the opportunities and tests kept coming for McChord. He received a $100 million offer for Datto and owned 100% of the company. “My lawyer offered up the best quote of all, ‘You could regret this decision the rest of your life …from your own private island.’ But, in the end, they didn’t understand our team. The employees who helped me build Datto could have lost their jobs and I loved coming to work. So much, in fact, that even when tested with a nine-digit number, I stayed.”
That was when he realized it was time to “run the business for real.” His employees had no equity and with no board in place, there was no one to help take the company to the next level. Paul Sagan was brought in as chairman of the board along with a number of other successful professionals to offer advice and support. “I looked for smart people since I had no idea what I was doing.” He also gave every employee equity in the company as well as cash: $1000 in 20s. A quarter million placed on a table and unveiled in a group meeting. That’s how you feed a unicorn.
Datto has since bought Backupify and worked through all the challenges associated with major business acquisitions. Austin McChord’s story of entrepreneurial success is an ongoing one, and will likely continue based on his commitment to people and processes.
