Building a Sustainable, Capital-Efficient Business: Backblaze CEO Gleb Budman (Part 6)

Sramana Mitra: Content marketing is actually an extremely effective method of customer acquisition, but not everything converts. There’s content and then there’s actual conversion. The tricky thing is to make content marketing convert. There’s this brand awareness that does very well with content marketing and not in every category does content marketing convert into actual dollars. That’s the trick of content marketing.

Gleb Budman: Of the million people that read that first blog post, only a small percentage of them actually signed up for this service. If you get enough of a community there, they share and they spread it. That, over time, helps out. One of the unexpected benefits for us with the content side of things is that for the first eight years of the company, we offered unlimited online backup. That was the only thing that we offered. For a lot of the people who read our blog post, it wasn’t even a relevant thing. They were interested in the blog post but there was nothing for them. They were techies and perhaps were on Linux.

People kept asking us over and over again, “You’re building this super inexpensive storage. Can I have access to the storage itself?” We kept saying, “I’m sorry. That’s not what we do. We offer backup.” After all those years of being asked for it, we finally said, “Maybe we actually should give you the ability to get access.” We started exploring that. About a month ago, we announced a whole new business line that provides that raw storage to developers and IT people. It competes directly with Amazon S3. For the first time in eight years, those blog posts that we’ve been writing about storage are actually speaking to the types of people that could actually be customers of our new service.

Sramana Mitra: Interesting. That’s actually a direct content marketing as opposed to any kind of indirect messaging.

Gleb Budman: It’s direct-ish. In our blog post, we’re not writing, “Hey! Use our new Backblaze cloud storage. It’s great.” We’re trying to write content that people find interesting about storage in general. One of the example is people kept asking us, “How reliable are hard drives? Can you tell me which the best one is?” We started publishing these failure analysis reports where we would look at all our hard drives. We have about 50,000 right now. We would see which makes which models. How long do they last? How much do they cost?

We publish those reports, and we started doing that once a quarter. It’s not the kind of thing where someone who reads one of those reports is going to then say, “Oh, I need Backblaze cloud storage.” If they’re interested in storage, some percentage of those people are going to go, “I actually do need storage in the cloud. Maybe I could use this service.”

Sramana Mitra: How about financing? You raised that first angel round. After that, did you raise any further financing?

Gleb Budman: One of the things that we decided early one was that after the first year when we committed to work without pay, we would sit down as a management team every six months, and discuss whether or not we would try to raise funding. Other than that small angel round, every six months, we met and decided no. We wanted to continue to bootstrap the company. There were various reasons for that including not wanting to distract people with the fundraising process, and not wanted to spend time managing a Board as opposed to building the company. Most importantly, not risking making the culture believe that money comes from VCs.

We wanted people to understand that money comes from customers. Every six months, we said no. Finally after five years in business, we were profitable and making millions in revenue. We actually had a meeting and said, “If we had the right terms and partner, we would be open to raising a round.”

Sramana Mitra: The driver being what?

Gleb Budman: The driver was three-fold. One was that this was around the time of the Thailand drive crisis. While we ended up not needing the funding, we realized that we had been running the business in a way where we were spending every single penny that came into the business on salaries and servers. That’s fine, but that means that if there’s a hiccup, the company could go out of business.

When the company was only a year old, that was fine. There were lots of reasons why a company could go out of business. When the company was five years old, we had a whole team of people and millions in revenue, and we didn’t want to go out of business because of a small hiccup of some sort. We wanted to put a little bit of money on the balance sheet for safety. The second thing was, we wanted some money to try paid marketing, which we had never tried before. The third thing was that, since we had gone for so long with either no salary or with low-market salary, we burned through a lot of our savings. We actually wanted to take some money back out of the table.

If we could find the right partner and the right term, which for us included not giving away a Board seat and finding a partner that understood that what we wanted to do was run a business that would be a business and not one of these companies where you just spend money like crazy – much more than what you would come close to in revenue – and hope you figure it out at some point. That’s not the type of business we wanted to run. At that point, we were running a profitable business. We wanted to continue running a business that was unit economics profitable and inherently a sustainable business. If we could find that, we’d be interested.

Sramana Mitra: What did you find?

Gleb Budman: We talked to a couple of VCs in Silicon Valley. Both of those things were not their model. In general, they want startups that would run as fast as possible at a wall. It’s perfectly fine if 8 out of 10 would just crash into that wall as long as one or two of them would become these $1 billion or $2 billion unicorns. That wasn’t the model we wanted to build. They also weren’t comfortable with the idea of not taking a Board seat. They wanted to have this very active role in the company.

We ended up finding a company called TMT Investments. It was lucky. I actually knew one of the people involved with TMT Investments. I knew him as a bootstrapped entrepreneur. At that time, we talked about some of our philosophies around building companies. He had left that company at some point a few years earlier and joined TMT. When I mentioned to him that we were thinking of raising funding, his response was, “Let’s do this.” He was very excited. He said, “This is perfect. You guys are a great investment. We specifically only invest in companies that are doing either a million in revenue or have millions of users, have tractions, and have a strong consumer bent. You guys have all of those things and more.”

He arranged for some meetings with some people on their side. To be frank, some of my partners were nervous about it. Even I was nervous. At the beginning, everything is always rosy. Sometimes, things change over time. I have to say one of the things I loved about TMT Investments is that they have been true to their word. We took this investment three years ago. They would regularly contact us and say, “We have this suggestion or this company you might want to partner with.” They always end up with, “It’s totally up to you. It’s your business to run. We just wanted to see if there’s anything we can add value to.” That is just a refreshing breath of fresh air. We raised funding from them and that was three years ago.

We talked about raising another round of funding about a year ago at this point. We’ve been burning through the cash. We decided that fairly soon, we would have to make a decision. We decided that we wanted to bring the company back to profitability so that we would have the option to raise funding when we wanted to and also have the option of not raising funding.

This segment is part 6 in the series : Building a Sustainable, Capital-Efficient Business: Backblaze CEO Gleb Budman
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