This is part of our AMA series with top SaaS founders and operators. If you’d like to join live, apply to FounderLed here.
Gleb Budman is co-founder and CEO of Backblaze, which he and his team grew to $65m in revenue and profitability, while building one of the largest and most cost-efficient cloud storage systems on the planet. They have over 500k customers in 175 countries around the world, and are one of the only companies to bootstrap all the way to an IPO.
See below for a lightly edited recap of the top questions Gleb answered.
When you took the company to $1m to $10m, was there a key hire or critical employee that helped you get through that phase?
First of all, we hired very, very, very slowly. Very few people in the first 10 years, other than the five original of us that started the company and two, what we call demi founders.
We only grew to 50 people in the first 10 years, so we were very, very careful and constrained about our hiring.
The hire that I think was critical for us was a support rep. And the reason I say that is that when we started the company, the five of us, and this is us in the one-bedroom apartment of one of my co-founders, where we lived in the office for two and a half years, the five of us did round robin tech support, customer support.
So I would take Monday, one of my co-founders would take Tuesday, one of them would take Wednesday. At first we were spending zero percent of our time because we didn’t have any customers at the time.
And then when we launched and we started having customers, each of us would spend five or 10 minutes a day on support.
And then as we started getting more and more customers, it became a full time job for each of us where one entire day was being spent doing nothing but customer support.
And when that happened, we said it’s time to actually hire a person for this. And so by bringing in that one person, it freed up all of our time to work on the company.
It wasn’t sales or finance or operations or anything else. I think the critical hire in that first early time was that it was a support rep who ended up becoming our head of support.
How did you make the decision to take Backblaze public with an IPO?
We actually went public at $65 million in revenue, so we actually had made the decision a few years before that.
And I remember having a conversation with one of the bankers when we were probably about $20 million in revenue.
And her saying, “why are we talking about this? You’re not going to go public. There’s no going public. You’re a decade plus away from that at the very least. Let’s talk about how we sell your company. We can find a buyer for your company.”
And we said at the time, I get that we can’t go public today, but we don’t want to sell the company. We want to build the company and we want to take it public.
And so I think the thing about it is the bankers make money as a percent of the size of the IPO. So they are most interested in, just like a real estate transaction they make their 7%, so they are most interested in doing the biggest deals.
But that doesn’t mean that as an entrepreneur, it’s the best decision for us, right? So we made the decision early-ish on that we wanted to take the company public.
The general thinking there was we had built and sold prior companies. We loved those companies, put blood sweat and tears into those companies, we worked really hard on those companies, assembled teams that we liked for those companies, built products that we liked for those companies.
Then we sold them and then more or less those companies vaporized. In the first company, it literally vaporized because the company that had acquired it went out of business.
In the second company, amazingly 15 plus years later, that product line still exists and still is sold. But it’s not the same.
They laid off a bunch of the people. They moved the people in different groups. It’s not the same. And so with Backblaze, we said, we have spent years and years crafting the product, caring about the customers, finding partners, mentoring employees.
We spent all of this time doing this. And now we’ve got half a million paying customers who rely upon us for all of their data storage needs and 400ish people who rely on us for a job that they love.
If we sell the company, all that might vaporize. By taking the company public, you get to do a lot of the things that a sale does.
It gives you access to capital. It gives people liquidity. It gives some of the reasons why people sell. But the company gets to continue forward and live on.
How did you get initial traction with cohorts and pilot partners? In that same vein, how much prospecting did your team do to get those early adopters with cold outreach and things like that?
It’s always hard when you go from zero when no one knows you.
Early on, we were focused on consumers. Today, we’re mostly focused on helping companies with all their underlying storage needs. But when we got started, we started with consumers.
The first thing that we did was, and we had no money because we were bootstrapping, we were looking for ways to do it without spending anything.
So PR was a focus. I know a lot of PR agencies will say you can’t use PR for lead generation, it’s for branding. That was totally not our experience. The right PR got customers.
We aimed to launch with TechCrunch and a few other publications, but we wanted that launch to actually drive customers. When I reached out to TechCrunch and a few of the others I said, we’re going to launch a private beta, and we’re only going to hand out a certain number of invites.
And if you write about it, we will give you a link so that your readers can get access to this private beta first.
So we did that and we gave them each about 300 access invites. By doing that, a lot of times when you read an article, you’re just like, oh, that’s interesting, on to the next one.
But by putting that link in, it was a call to action that people had to, if they thought it was kind of interesting, they had to actually take action on it. So we actually got a lot of customers that first day during the product beta launch. That was one thing that we did.
The other thing that really ended up being successful for us, was that I started blogging at the very beginning and talking about data storage and data backup and everything else way before we had a product and just kind of market industry stuff.
And, you know, six or seven people, maybe including my parents and my brother, would read those blog posts.
We were planning on using Amazon Web Services as the underlying storage platform for us, and we found that that was going to be too expensive. So we ended up going down this path of designing and building our own storage cloud.
We had this funny thing happen where people that we would talk to would say, well, it’s impossible. You can’t do that. It’s not going to work and all this stuff, including: You can’t offer an unlimited backup or storage for this low price.
They didn’t trust it because they knew how expensive Amazon was.
We started talking about how much we can share to give them confidence that we actually built this interesting storage platform, and eventually we decided to open source the hardware that we designed.
We wrote a blog post, and we spent a lot of time crafting that blog post to think about the virality of it. We shared a lot, we opened source, we had charts, we had pictures, we gave designs away, things that we thought people would care about.
Then I found people, journalists who would normally cover this kind of area, reached out to them, and basically really prepped all of it to focus on virality.
That one blog post had a million people read it.
Even though the prior one’s probably six before it. Out of the million people that read it, it wasn’t like a million of them became customers, but over 1,000 of them did.
Which for us, you know, kind of to your point about cold start, was a lot at that time.
And then we started thinking about, well, if that was successful, how can we replicate that?
I mean, we took us like two years to design this storage cloud that was, you know, a fifth price of Amazon. We’re not going to do that every single day to publish another blog post around.
But then we found that we could lean into that because after we published that blog post, people said, whoa, how have you done it so inexpensively?
Can you tell me more? What about, you know, how did you do this piece of it? And how did you, you know, what about the temperature of the hard drives?
What about the vibration of the hard drives? They wanted to learn more and more and more. And so we could do follow-up posts that didn’t require two years of work, even though we didn’t even have much of the product ready for sale yet.
When determining pricing, whether it be a monthly or an annual subscription, did you find that cautious companies were able to connect with you a lot easier when they had the monthly option?
That’s a great question. We started offering monthly and annual plans. We had the radio button put on monthly, and then you could choose.
When we did that 60% of the people chose monthly, 40% chose annual completely. We didn’t push people in any direction other than having the default be monthly.
At some point, you know we’re bootstrapping and didn’t have cash, we needed to try to figure out how to bring in some more cash quickly.
And I thought that if more people would choose an annual plan, that would be really beneficial. So I tried an experiment where all I did was move the radio button default. It was still a choice.
Upon checkout, you could still move the radio button. And it flipped to 60% choosing annual and 40% choosing monthly.
On the one hand, that doesn’t seem like that big of a switch, but the 60% that chose annual, the extra 20%, paid an entire year upfront.
From a cash flow perspective, it was actually a massive shift for us, and it didn’t seem to affect conversion rates through the funnel. At that point, I was kicking myself, my God, we should have set the default to annual on day one!
Did the annual discounts ever impact cash flow?
One of the things we were cognizant of was that since we provide a storage service, we actually have to deploy equipment for you. So if you paid us up front for a year, six months later, you’re still giving us more data and we actually have to deploy equipment to accept your data.
If we’ve spent all the money up front, then we have capital issues later. So it did require a certain amount of being careful of how quickly we were spending money. We were continuing to grow, so that definitely helped.
If we had stopped acquiring customers or were shrinking customers, I think those would have been bigger issues. We did keep adding customers, so some of that was helped by that. We were cognizant of the fact that effectively we were taking a loan from the future.
One of the things we looked at was on the one hand, we were getting the cash upfront. On the other hand, we were giving people a discount for that.
It wasn’t a straight 12x the monthly. We were trying to decide what’s the benefit? First, we thought, if cash flow was not an issue, we should do it monthly because we’re going to collect more cash.
The churn rate was a little bit higher for monthlies than it was for yearlies. Even though we were giving a discount for yearlies, we actually, on average, were collecting about the same amount of cash because the churn rate on monthlies was a little bit higher.
There’s also that tradeoff to just be cognizant of.
What was the discount rate you were giving for the annual plan over the monthly? How have you changed your approach to pricing?
Originally, I think it was two months. I think you were getting $5 per month and 50 hours per year.
So you basically got two months for free.
We didn’t change prices for a decade, and that was great from the perspective of stability and not having to worry about it, but we’re storing more and more and more data for our customers, and with some things that were happening in the industry, and hard drive prices and everything else, prices on the equipment was not falling as quickly as it had in the past.
So between that and inflation and a variety of other things, we decided to raise prices. We were very, very nervous about doing that, because after 10 years of never changing prices, doing a price change was something we were very nervous about.
We did a variety of things to try to make that go smoothly. One of the things was that we wanted to try to both add value and convey that we were adding value, right?
I think a lot of the companies out there when they increase prices, they just send an email and say, your price is going up. We did a variety of things to try to smooth out.
One of things that we did was we had planned out product functionality and made sure that the pricing increase was being done at around a time when product functionality was being released.
It was at the top of mind for people that we are innovating on the product. We included some of the explanation and some of the examples of that in the price increase email.
We also explained some of the underlying trends for what was driving the cost. Here’s what’s underlying the business here, some of the metrics behind it. I think that some of those things help people kind of appreciate the need for it.
We also did something called extensions where we said existing customers can choose to pre-buy for a year if they wanted to at the current price point. It was a way to say that we care about you as an existing customer in some ways more than as a brand new customer showing up.
I think about 10% of the people actually chose to do that. So it wasn’t 90% of the existing customers doing that, but I think a lot of the existing customers, even if they didn’t do that, appreciated that it was something that was offered to them.
As you grew the business in 2012 from $5 million in revenue, to $65 million in 2016, what were your biggest challenges with your team? What changes did you need to make to accommodate that growth?
In general we hired very slowly. So our approach was we would do things once we hit a point where the person doing those things was tapped out then hire, so we didn’t generally hire ahead of things.
A key thing for us at one point was bringing in another really senior engineering person.
We had started the company offering computer backup, and we constantly had customers asking us for access to our platform. For a long time, they said, look, I use you for computer backup for all my laptops and desktops, and that’s great, and I love that.
But I have all these other storage needs. I have this application that I’m running on S3. It’s really expensive, and it’s hard to use.
Give me access to your platform. I trust you guys, you know, you obviously know how to do inexpensive storage. Give me access.
And for the longest time, we said no. We said no, because we were just like, we are too busy. We have too small a team, we’re too tight. We do not have time to work on that.
Around 2014, we said, the computer backup business was a good, stable, growing business, and we had some cash that we could allocate to things. We said, we really want to go and pursue that particular thing. And to do that, we needed to hire another really senior engineering person to basically kick off this product line that would compete with Amazon S3.
That was probably one of the most critical hires for us. I think a lot of times people talk about hiring that head of marketing or that really awesome salesperson or whatever else. At least in my experience, it is really hard to find someone who is going to accelerate the business growth more so than the founding team going into figuring it out.
So that is not to say never. Today we have a CMO, have a VP of sales and we have significant size teams on both of those.
VCs came to us and said, look, we’ll just give you money so you can grow faster. And in my experience, those two are not necessarily correlated.
Raising money means spending more money – it doesn’t necessarily mean growing faster.
Was your growth in 2014 onwards driven by that product expansion?
It was both. The computer backup business continued to grow. Even today, it’s still growing 16 years in. But the acceleration in growth was driven by that B2 cloud storage offering.
Because that one started from zero, and now is almost half of our revenue. But it started seven plus years later. So making that decision was really important for us.
And it’s basically the focus for the company now is that B2 cloud storage offering.
We have time for one more question. Something I think the founders here are curious about is, I guess, any insights into that time, know, you said you made that key engineering higher between 2012, and things really start to pick up.
What would be your advice to founders in that stage right now looking to get to that growth curve that you were able to achieve?
For us, it was a lesson I feel like I had to learn and then re-learn a few times.
Spending money on stuff because it’s the thing you’re supposed to do, often doesn’t work. We tried Google ads, we tried doing sponsorships, tried doing events, and we tried doing lots of stuff.
For the longest time, the two things that fundamentally worked best for us was that combination of the blogging social community and PR, so I think that content marketing, and just product focus.
Those two things, throughout much of the growth of the first 10 years, continue to be our biggest benefits. We experimented with a variety of stuff, and I’m not saying don’t experiment because things do sometimes work and sometimes stack, and I’m not saying that content marketing is the right answer for everybody’s business.
But it’s just that when we found something, it was interesting how long it could continue to be a leading growth factor for us long after I think we thought it would be able to be that. And long after I think many people expect them to be.
More places to find Gleb:
- Follow him on LinkedIn
- His keynote at SaaSOpen 2023: How We Bootstrapped Backblaze from $0 to IPO and $87m in ARR
- Read his insights on the Backblaze blog
This is part of our AMA series with top SaaS founders and operators. If you’d like to join live, apply to FounderLed here.