How Backblaze Achieved 917% Growth

By | November 17th, 2014

blog-fast500

With 917% revenue growth over the last 5 years, Backblaze has just secured itself the 128th spot on the list of the fastest growing technology companies in the United States. The journey has been exciting but could have come to an abrupt end at various times. Let me share a bit about how we grew and what we’ve learned.

Start
In 2007, Jeanine had a computer crash and begged Brian for help recovering her files. She had no backup. He could not help.

Five of us talked about this experience and realized that 100% of the photos, movies, and personal and work documents were going digital. But with fewer than 10% of people backing up their computers, eventually all of these digital items would vaporize. We quit our jobs and started Backblaze to solve the impending disaster.

Financing
While we had previously raised VC funding for startups, we decided to start Backblaze differently, committing to each other that we would work for 1 year without pay, and to put a bit of money into the business. This would effectively be the seed round.

After five years of steady growth, we decided to raise our first VC round.

Challenges
From the outside it seems like a simple, beautiful exponential growth curve up and to the right. From the inside, the challenges along the way don’t fit onto a single page. Probably not into a book either. Paul Graham has a fantastic chart of this experience he calls the “Startup Curve”.

I thought of many issues we might have: not getting the product/market fit right, not being able to build the product, not being able to attract customers, running out of cash. And some of these bumps, such as finding that many of the expected ways to find customers don’t work, we actually did run into.

But others, such as the distraction of almost being acquired or the massively impactful challenge of a flood in Thailand were harder to predict.


Successes
Despite the challenges, there were two things that kept the company succeeding: 1) focused, determined, hard work, and 2) luck.

The day of our initial beta launch on June 4th, 2007, we had glowing articles in TechCrunch and Ars Technica. People were signing up in droves and it was thrilling. But a week later the servers were bored – no one was showing up to the website. The initial external excitement vaporized and what happened next was all of us having to put our heads down and plow forward. Day after day we needed to do the small things required to build the business, that over time, add up to growth.

And then there was luck. We planned to store data on Amazon S3. Since we couldn’t afford it, we designed our own storage. Not only did that end up being a huge boon to us as it dramatically reduced our costs, but open-sourcing our Backblaze Storage Pod design hit a nerve and 1 million people read that blog post. It helped put us on the map.

Growth
Early on the data center asked us to commit to ¼ of one cabinet for one year. At the time that was a $12,000 commitment and we negotiated it down to 6 months to reduce our risk. Now we have over 100 petabytes of data stored in over 100 cabinets, adding 3 cabinets of equipment every month, and committed for several years. Sometimes growth sneaks up on you.

From 2009 through 2013 we’ve grown revenue 917%. That was good enough for 128th place in the 2014 Deloitte Technology Fast 500™ in the United States – just beating out Facebook in the 129th spot.

To qualify for the Fast 500 a business had to earn over $50K in revenue in 2009 and over $5M in revenue in 2013. We obviously exceeded those numbers. (While we don’t disclose revenue, Backblaze is in double-digit millions of dollars in revenue.)

Balance
In the same period as Backblaze has grown 917%, it is estimated that 55% of companies failed. Mortality rates are even higher in the information technology space where Backblaze resides, and over the years multiple online backup companies and services have folded.

There is a saying I’ll paraphrase: Businesses don’t fail because they are unprofitable; they fail because they run out of cash.

Bootstrapping a company, especially a capital-intensive one, meant we constantly had to watch cash-flow. Initially we were “afraid of customers” because a large influx of new customers meant having to buy another $10,000 storage pod, for customers who would pay us $5 per month. Eventually it would make sense, but for the first year we would be cash-flow negative. We came up with one simple way to solve this cash-flow challenge, but without raising capital, sometimes you have to make the tradeoff that things that make sense in the long run aren’t feasible because you won’t make it to the ‘long run’ if you run out of cash.

Takeaways
I’m honored that Backblaze has received this Fast 500 award and there has been a lot that we have learned. Here are 4 key takeaways:

  1. Build a sustainable business

    I don’t mean a ‘green’ business; I mean a business that can last. A business can’t be high-growth if it’s out of business. Aim toward a model where customers support the company, even if at times you decide to raise funding. If customers are the cash-engine, your business won’t be at the whim of the funding markets.

  2. Plan for the long term

    Some companies are a flash-in-the-pan – founded, launched, and acquired in a year. There’s a draw to this quick-buck approach. But most successful companies take years to build. Work on something you’ll be excited to do for many years. It’ll make the journey great, help overcome the bumps, and increase the chances of success.

  3. Work a day-at-a-time

    A great launch or customer-win feels fantastic. Celebrate the successes, but don’t fear the small steps. A business that makes $1 in revenue the first day and grows a mere 1% per day will only make $37 in revenue per day after an entire year…but it will make $76,240,508 in revenue per day after five years.

  4. Stay focused

    When we started Backblaze, we wrote an entire wall of products and features we wanted to build. After 7 years, we’re still working on the first one. Solving the right problem takes focus and time, and doing that is generally much better than partially solving many different problems.

Today is one of those exciting ‘success’ days when we celebrate an achievement. But this growth is looking in the rearview mirror. And tomorrow it’s time to get our heads back down and charge on.

 

Gleb Budman
Co-founder and CEO of Backblaze. Founded three prior companies. He has been a speaker at GigaOm Structure, Ignite: Lean Startup, FailCon, CloudCon; profiled by Inc. and Forbes; a mentor for Teens in Tech; and holds 5 patents on security.

Follow Gleb on: Twitter / LinkedIn / Google+
Gleb Budman

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Category:  Entrepreneurship
  • Scott Tactical

    Great article. And still an inspiration. I think giving the concept of the storage pod back to the community was what did it. Everyone I know who understands storage has referenced that build at some point.

  • John Alex

    Informative article, just what I was looking for.i also find a wonderful infographic:-http://www.designhill.com/infographics/factors-that-influence-startup-success

  • Drew Post

    Hi there – I have a number of files backed up on an external NAS. I do this as I need access to them across multiple devices over the whole network. Currently Backblaze doesn’t support these NAS drives. Are there any plans to offer this as an option? I, for one, wouldn’t mind being able to have the option to pay a license per NAS just to ensure I can back it up. Is there any chance of this happening?

    • Hi Drew, we have nothing to report on that at the moment, but we do know that NAS support is a feature that a lot of our customers want added, so we take that in to consideration when planning various projects and feature lists.

  • Robbll

    Congrats on a job well-done, you deserve the success for making the digital world a little safer when it comes to preserving our data!

    • Thanks @Robbll:disqus!

  • DWisehart

    Great article; great company. I have six computers with BackBlaze accounts and am about to add a seventh. With three different companies I have built a number of our own storage pods–everything from plain-jane, same parts as the plans, to pods with upgraded everything and a combination of SSD and spinning disks and multiple 10 Gb network connections.

    My question is, when do you think you will stop putting spinning rust in your storage pods? Maybe the more fair question is: what the the storage density and price point non-spinning disk has to hit before it makes good business sense to switch? Perhaps it is when the reliability of solid state and flash devices is much better than traditional disk. Then again, maybe BackBlaze will be the last company on the planet to use spinning rust, because it matches your backup business model so well.

    • @dwisehart:disqus – good question! It really comes down to cost for us. Currently 2TB SSD costs are about 100x from what we can get the HDDs for. They have to come down A LOT, in order for us to consider them. Until that happens, the HDDs work well enough for us ;-)

  • mAurelius

    Excellent article, thanks for your transparency! As others who have commented, I’m a long-time Backblaze user and fan. Started using it for myself and my family, and eventually brought our small-business on board.

    My question is related to your pricing model. I love the $5/month simplicity, and it’s one reason I recommend your product to everyone I can (aside from the “so easy your grandmother could do it” simplicity). How do you plan on combating inflation, and the reality that $5/month doesn’t go as far now as it did in 2007, and I’m sure in another 5 years that will be even more true? Do you mainly work to continue to drive hardware costs down, or do you have any other strategies in place to keep it at $5/month even as the buying power of $5 continues to go down over time?

  • Renaud M

    Awesome post, thank you for sharing, I have been your customer for two years now, working in the tech field as well I relate to many of your problems.

    • Glad to have you Renaud! Thanks for being with us! :)

  • If I had a buck for every person I’ve referred to Backblaze (and they all love it) I’d be able to fund your next company.

    I’m pretty sure that I was one of your original customers – probably signed up the day the article appeared in TechCrunch – and have only twice needed to restore a file. I’ve got plenty of other backups – two clones (one daily and one weekly) using Carbon Copy Cloner and Dropbox – so people often ask me why Backblaze. I tell them it’s the best money I invest in my computer every year because it just takes the worry out of clouds and crashes.

    Well done, Gleb. I’m always delighted to see a company that I’ve been loyal to become such a success. Bravo!

    • Thank you Scott! :)

    • If you’re regularly referring people to Backblaze, make sure you take advantage of our refer-a-friend system. If you refer someone new to Backblaze, they get a free month. If they buy, you get a free month added to your account, which is worth more than a buck to each of you!

      Details on it are here: https://www.backblaze.com/blog/backblaze-launching-refer-a-friend/

  • Gustavo

    I have a question that has been asked before, but this time it would be great to get the business point of view.

    One of the most requested features is the extension of the 30-day retention policy. According to your twitter account and some research online it’s a feature that has been “considered” for a long time but we’ve never seen any sights of its implementation. It is feature that would potentially bring new clients specially coming from one of your main competitors that offer a bigger retention.

    What’s the reason this feature haven’t been implemented yet, from a business point of view?

    Isn’t Blackblaze prepared for the amount of potential new clients that might jump in? Is the extra storage costs too high and not worth the investment? Is it more like a philosophy issue, you don’t want to deal with the long term backups?

    Thank you!

    • Hi Gustavo! You hit a couple of the reasons in your question. Archiving that data, and holding it for longer than 30 days, adds a lot of costs. Our current $5/month model is built on some amount of data churn, meaning we anticipate on some space reclamation from people who delete unwanted files. Adding any more time adds quite a bit of cost. We would certainly be able to handle the load of new customers (we actually don’t think there’d be a ton, as most of our customers use us as a backup, and not as an “archive like Amazon S3), but if we had to hold all the data indefinitely, and turn in to more of a “archival” service, we would likely need to raise prices. Right now, Backblaze is easy, it’s $5/month for unlimited data backup, with 30-day retention from the time you remove data from your computer, and that makes it easy for our customers and future customers to figure out whether or not we’re the right provider for them.

      Also it’s a bit of a philosophical issue, we’ve built Backblaze to be a backup. Meaning you always hold the primary copy, and use us immediately to get it back if there’s an emergency. Holding the data forever could potentially encourage people to store their data with us, and remove it from their machines. We’d have to make some serious changes to our company philosophy and infrastructure in order to be able to do that. They aren’t insurmountable obstacles, but we’ve been placing other projects as higher priorities for now. Not to say it will never happen, or that we won’t come up with pricing schemes and spin that type of service off as an “add-on”, but as the above post shows, we try to grow smarter, not faster. So even though we would get an immediate gain of users, we want to make sure that we do it the right way, and not the easy way (charging more and hoping we price it correctly to coincide with our higher costs).

      Hope that sheds a bit of light!

      • Gustavo

        Thank you for the detailed answer Yev.

        I really admire Backblaze’s way of doing business. There are not many companies with such a solid product aligned to their goals and philosophies. You guys really know what you’re doing.

        It’s a shame that at the moment you’re not the right solution for my needs. I try to keep my main hard drive as empty as possible (only projects I’m working at the moment) and keep all my finished projects on an external HD that I don’t connect that often. I guess I fall into the “archival” category you mentioned.

        Anyway, I’m looking forward to the new pricing schemes and add-ons when you think it’s a good time to focus on that.

        Congratulations for the great service you offer!

        • We’ll be happy to have you back soon as our offerings align with your needs! We have a saying at the company, “We sell amazing hot dogs, not hamburgers”. Lots of people want to buy a hamburger from us, but until we can find the perfect way to cook it, we’ll stick with what we know best! If your friends like hot dogs though…send em our way ;-)

  • Your blog post about the storage pods is what got me to subscribe, and I’ve been a happy customer ever since. Thanks for making backup trivial!

    • That was our goal! So easy, your grandmother can do it. So there’s no excuses!

  • Reefiasty

    This is very impressive. I have only one question: why no deduplication?

    • We do deduplicate, computer-wide. We’ve thought about account-wide before, though nothing to report at the moment!

    • To expand on what Yev wrote, we deduplicate inside your computer before transmitting to the Backblaze datacenter. We DO NOT deduplicate across the entire datacenter because it brings up interesting privacy concerns we haven’t wanted to worry about. Right now, your data is totally encrypted and we have no idea what is in your files (and we really do not want to know!) But if we deduplicated, we would essentially know “in certain cases” for example if your music deduplicates against a well known highly pirated copy of a particular song, we would know your copy of that song is “very likely” illegal. We just don’t want to get involved with any of those privacy questions – so right now your backup is locked up tight and heavily encrypted and we have no way of knowing if any one customer has a particular pirated song or not.

      • Reefiasty

        I am sorry for not being more specific: I meant the global deduplication and the storage cost reduction associated with it.

        I bet there is a sizable group of customers which does not care much for privacy of (a sizable portion of) their data (which makes this portion very likely to be purely legal), but does care about their monthly $2. A plan which supports global deduplication for portion of the data for a discount could drop your service price and increase your profits more than any storage pod tweak ever will. Yet you do not do it, which is very interesting. Is it purely because of the legal issues (like some acronym organization requesting a list of users which have a certain file and all the hassle for the company which comes with it)?

        • > Is it purely because of the legal issues

          Not purely, but influenced by? In addition to the privacy implications, Backblaze focuses on being “easy to use”, and having a checkbox to determine if you want $3/month and use deduplication or $5/month without brings up a whole mess of complication and questions and discussion. Heck, we don’t even offer “infinite roll back history for $9/month” because too many options confuse half our customers. (The other half are programmers that can handle any level of complexity. :-)

          To be totally honest, we would also have to write more software and solve a few (surmountable) technical problems and so far we have always prioritized other projects higher. We only have a few developers, and limited funds to hire. We always want to stay profitable and not borrow money or raise any more venture capital, so we live within our means and grow the technical team only when we have the extra funds to do so.

          • David

            Very nice and impressive..

            I have a question regarding storage pods failure.. if your storage pods fails due to multiple drive failure.. how you are going to recover data ?

            also do you have backups to protest against these events and what kind of backups you have like tape backup etc.. ? How long will take to recover the data in case of storage pod failure?

            Thanks,

          • Hi David! If we lose a drive in a pod, the pod automagically goes in to a read-only mode, so users can still restore data, and the strain on the hardware is limited. So we rarely lose more than one drive in a pod. Since all the pods are in RAID 6, we can lose up to 2 dries that are part of any RAID, so it’s pretty rare for us to lose multiple drives in the same RAID array. Usually when drives do fail, we either swap it out, or we can recover data from it because sometimes it’s fixable using various techniques. We don’t have backups of the backups on other mediums. Since we’re a backup and not an archive, we rely on the user to have the data as well, so if you lose data we have it, if we lose it for whatever reason, you still have. It’s only if we both lose it at the same time where data could be lost. The odds are astronomically low of that happening, but that’s why we recommend a 3-2-1 policy, meaning 3 copies of the data. 2 locally (the original and an external drive), and 1 offsite, like Backblaze. If you do that, you’re pretty well covered!

          • David

            Ok.. Also you are using distributed file system on your servers ? if yes.. which one ?

            Thanks..