The Logic and Story Behind Data Domain's Success

Data Domain is a data backup service provider that went public in its sixth year after founding and was acquired by EMC two years later, becoming EMC's second fastest-growing business after VMWare. The CEO of Data Domain shares the story and logic behind this in the book "Tape Sucks," which may be the best SaaS book I've read in recent years.

The company's background is venture-backed, with top-tier investors. Most team members hold PhDs, indicating that the problems the company solves are quite challenging; top talent is more interested in solving difficult problems than merely interesting ones. There were four founders: one with an academic background, one with an engineering background, one with a product background, and one an expert in data. The author joined the company a year and a half after its founding, just before the Series A funding was about to transition to Series B, and became the CEO.

The problem the company addresses is using hard drives for data backup, replacing cheaper but less reliable tapes. This is also the title of the book and the company's slogan: "Tape Sucks, Move On."

No Pain, No Gain

Only the Federal Reserve can create new money; everyone else's money is obtained from others. Narrowly speaking, most businesses are zero-sum games.

So when starting a company, you need to understand from whom you are earning your money. With limited budgets, what will they stop buying once you enter the picture, and what will they buy instead? Who are you replacing, and why will you succeed in replacing them?

"Creative destruction," or "no pain, no gain," is a fundamental truth in business; you better understand whose lunch you are stealing.

Target a product category that is being questioned or is declining; this increases your chances of success. Do not target a product category that is on the rise.

Start from Applications or Use Cases, Not Technology

Company operations always consume resources. When you launch a missile, if there is no target, it will continuously consume fuel and eventually fall.

Make Customers Happy

"Everything revolves around the customer" is a common saying, but how can you truly achieve this?

Everyone in the company should listen to and discuss user feedback. Before receiving the first round of funding, the company had already gathered specific feedback about the product from dozens of customers. The importance of all other ideas ranks behind customer feedback.

This has two benefits:

1. Maintains focus
2. Aids sales: Customers prefer to work with vendors who genuinely care about their business and learn from them. For specifics, refer to the HBR 1993 article on Customer Intimacy.

Not every business is buyer-driven; for example, the iPod was not created because customers wanted it.

Create Your Own Blood Supply

Buying things is hard; selling your product directly is more challenging than letting someone else sell it. However, the authors decided to build their own marketing and sales teams for several reasons:

1. Intermediaries put you further away from customers, making it harder to achieve intimacy.
2. You become dependent on others, losing control over your destiny.
3. No one will want to sell your product more than you do.
4. You can only take home 10-20% of the profits.
5. They believe their product is genuinely good, so if competitors sign agreements with intermediaries, it must be because they cannot compete with them directly.
6. If the company's goal is to go public, this approach is more controllable and predictable.
7. If you find strong salespeople, it not only strengthens you but weakens your enemies. This is what victory is; Ulysses S. Grant once said that victory is breaking the enemy's will to fight.

Building a marketing and sales team is fraught with challenges and can take years. Essentially, it involves continuously finding ways to make the sales team

1. Efficient
2. Cost-effective

Building a marketing and sales team is a costly endeavor, so a crucial prerequisite is that their product has an 80% margin.

To control expenses, marketing and sales are done together.

Clarify Sales Channels

1. Direct sales: buy if you want,
   1. If you don't buy, your competitors will.
   2. If you don't buy, your customers will.
2. Omnichannel strategy: large suppliers correspond to saturated channels and big clients, which can attract small and medium clients directly. The omnichannel strategy does not affect profit margins; with intermediaries, prices are slightly higher, and without them, they are lower.

The more directly you can reach customers, the more power you have.

When to Persist and When to Give Up

When not making money, focus on conserving strength; once you find a good breakthrough point, spend resources quickly and efficiently. In the growth S-curve, there are two key questions to repeatedly ask yourself:

1. When will the breakthrough point come?
2. Once the breakthrough point arrives, can you invest enough resources for growth?

Cash is the fuel that allows the business rocket to fly; if the fuel runs out before reaching escape velocity, the rocket will fall.

Set and collect data evidence to reach milestones for securing the next round of funding.

Growing Pains of the Team

The company faced a ceiling in team growth due to insufficient guidance for leadership and being overly stingy in hiring managers.

Initially, almost everyone was an independent contributor focused on getting things done. No one was dedicated full-time to recruiting and performance management. Without proper processes in place, it was impossible to onboard new hires effectively.

In the early stages, growth is always more important than profitability; slightly managing the efficiency and rate of cash burn allows the company to survive. Consequently, when sales reached 40 to 50 million, there were only two finance staff. The desire to survive led to a reluctance to hire unnecessary managers and raise funds.

Hire Potential Stars Instead of Superstars

When the company is still small, the people you want may not want you; if you can't hire superstars, you can hire potential stars. Good potential stars have the following characteristics: full of energy, enthusiastic, ambitious, smart, hardworking, and eager for the job.

After hiring many potential stars, the company even developed a culture of "everyone has a mission to prove themselves."

Rapid Experimentation

How does the company achieve rapid experimentation?

1. Lead by example from the top. Quickly and openly acknowledge, address, and summarize mistakes.
2. Prohibit a culture of punishing mistakes or settling scores later. Whether people or machines, mistakes and errors are inevitable; sincerely learn from them to avoid repeating them, or create a mechanism where making mistakes does not cause harm.

Are Large Banks Suitable Initial Target Customers?

No. Because large bank customers:

1. Are overly picky
2. Are too conservative, leading to long sales cycles

Startups should focus on places where they can quickly sell products, rather than getting bogged down with large banks.

The key is to find traction. Data Domain found traction in the mid-market and channels, avoiding trouble, increasing installations, refining products, and making customers happy.

Once mid-market customers are secured, then pursue high-end clients.

Lead by Example, Experience the Battlefield, and Stay Motivated

In a brawl, what kind of leader is most motivating? Of course, it's the leaders who charge to the front and beat the enemy. Similarly, as the CEO in charge of sales, the most motivating thing is to travel for a few days, meet five or six customers daily, and return to share experiences and customer feedback with the team.

If you don't do this, you will distance yourself from your team members, making it harder to relate and understand each other.

The marketplace is like a battlefield; if employees cannot feel the cold wind of competition every day, if they cannot sense their efforts defeating bloody opponents, if they cannot feel the atmosphere of the battlefield, how can you expect them to be motivated and work hard?

Express Humanity with Authenticity

The first rule of leadership is to be yourself and be the person you want to be. Two reasons:

1. If you don't feel worthy of being followed, and you have to follow others, how can you expect everyone to follow you? They can directly follow the people you follow.
2. People can easily see through pretentiousness; if you pretend, you will come across as lacking enthusiasm, preferences, humanity, and energy, and no one will remember what you said.

How to be an authentic leader? == Publicly show your determination, enthusiasm, energy, passion, and relentless desire for success.==

For example, the author participates in triathlons and makes controversial statements. When questioned about why a large tech company could replicate their technology in six months, the author responds without hesitation: "You can send a thousand women to have babies, but no matter how many there are, it still takes nine months; software development is the opposite of economies of scale: the more people involved, the slower the progress."

CEOs Must Overcome Ego

• The CEO is not the owner of the company; the investors are.
• Arrogant CEOs often lack self-awareness, while outsiders can easily see it.
• Never miss the opportunity to praise others; if the company does well, you will receive all the accolades, which is not solely your achievement.
• A self-centered leader often says "I" instead of "we," and "my" instead of "our."

Start Internationalization Early

No matter where you conduct sales, it takes a long time; it's best to start early.

The Board Does Not Operate the Company

• The board supervises and advises but should not operate the company.
• Listen to the majority's opinions, consult with a few, and make your own decisions.
• Sometimes a company grows beyond the board's level of experience.

Going Public

By the fifth and a half year, the company's cash flow had been positive for some time, and it wasn't lacking in operational funds; why go public?

1. When competing with giants, a publicly traded company with financial transparency reassures customers.
2. Investors need liquidity.
3. It makes operations more standardized.

Be sure to bring in people with the right industry experience to help you.

Acquisition

Two years later, NetApp and EMC competed to acquire the company; they chose EMC because:

1. Their product line was too narrow, threatened by comprehensive data center solution providers.
2. EMC offered a full cash acquisition.

Corporate Culture

In business, the essence of culture is a collective value system—a group of people reaching a consensus on what is valuable and what is not.

Whether you are there or not, whether you define it or not, company culture will exist; good culture makes the company a more pleasant place, so its value is self-evident. The author even believes that company culture is the only form of sustainable differentiation.

At that time, the culture formed throughout the company was called RECIPE:

• Respect
• Excellence
• Customer
• Integrity
• Performance
• Execution