How To Defend Your Dream Against All Odds: Alex Bouzari, CEO of DataDirect Networks (Part 3)

Sramana: How did you fund Mega Drive Systems?

Alex Bouzari: With the few dollars that we received from licensing our previous companies technology, as well as some of our credit cards. We worked 16-hour days. We designed the product, wrote the data sheets, and sold them to customers ourselves. In 1988 we managed to generate a couple hundred thousand dollars of revenue. We focused on the government and data security as our application space. In 1989 we passed 1$.5 million in revenue and we broke even by that time.

The company scaled without external funding. We got the company to roughly 40 million dollars in revenue and had a couple hundred people working for us. We did all of this without VCs by focusing on the government sector through the mid-1990s, although eventually we did start selling into some media companies. The media industry was starting to move from analog to digital. They put video content on a removable hard drive to take with them from location to location.

We essentially had a lifestyle company. In 1995 and 1996, we did $40 million in revenue. We saw it plateau in the $40 million range. It was nice because we were profitable each and every year. We did not have to rely on outside funding and deal with those complexities. Our customers were doing cool things with our products, and we were having fun. By 1997 we realized our business was not going to grow much further. We had to make a decision to either go full bore into significantly upgrading the technology or take the manufacturing path to lower our costs in order to get into higher-volume, lower-margin business.

We spent about six months thinking through the decision. We were technology people, so manufacturing and cost efficiency were not really appealing to us. We decided to take the technology and improve upon it. Our customers told us that they had very powerful computers but they did not have high-performance data storage. Everybody was complaining about it, so we felt we should do something there.

From 1997 to 1998 we took a systematic approach and spent a lot of time talking to the Department of Defense, the Department of Energy, and various universities that did simulations. We realized there was an opportunity to develop a data storage product that can deliver significant bandwidth in order to take advantage of the computer intensive processing being done by our customers. We knew if we could develop the technology that we would have a market. We felt that a product like that would be our path to building a $100 million company. It would still be a lifestyle company, but it would be better than a $40 million company.

We expanded the engineering team and from late 1997 through 2000 we developed the technology necessary to give us the ability to really ingest very large amounts of data at high performance, store that data, and make it available to users. We had to do everything from scratch because nothing necessary was available. We had to develop a real-time operating system which resided in an appliance that we had to create. We had to do ASIC and FPGA work which we had never done before.

Our first customer was NASA, and they remain a customer today. Getting that product developed required all of the remaining savings that we had. In 2001 we felt we had to do some outside funding to be able to sustain the company because it was going to take us some time to scale the product and we still had additional engineering work. We did a Series A, which we closed in late 2001. We raised $12 million, and we realized shortly thereafter that VCs and entrepreneurs have different agendas.

This segment is part 3 in the series : How To Defend Your Dream Against All Odds: Alex Bouzari, CEO of DataDirect Networks
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