An Interview with Frank Slootman, CEO of Data Domain

June 17, 2009

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?

First, half 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 this?

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 a downturn?

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 member firm.

Access Search Partners is an alliance of the world's premier technology and CleanTech executive search firms. The combined firms' global databases provide unparalleled reach in accessing world-class talent, best executive search practices, and thought leadership while maintaining a hi-touch local presence and service. Member firms include Schweichler-Price and Partners (Silicon Valley), Polachi (Boston), StoneWood Group (Toronto, Ottawa), Braithwaite Steiner Petty (Sydney, Melbourne, Tokyo, Singapore, Hong Kong), and Lancor Group (London, Brussels)