Datto CEO Recounts Milestones, Struggles That Built Successful BDR Company

Stop me if you’ve heard the story of Datto’s rise before. Actually, allow me to recap it the way that founder and CEO Austin McChord did last week in New Orleans at the company’s third annual partner conference. Even if you think you know the backup and recovery company’s story, you cannot help but being drawn to it after hearing McChord describe the happy accidents, hard-learned lessons and healthy disagreements that made the company one of Inc. Magazine’s fastest-growing companies in America for the last three years running.

McChord, one of Forbes’ Magazine’s “30 Under 30” standout executives for 2015, took the stage in New Orleans to provide the more than 500 gathered partners with a history of his company. During his 50-minute talk, he talked about his humble beginnings and rise to fortune in cloud backup and recovery technology. He also explained why switching to a leveraged sales model that relied on partners to sell and support customers turned out to be one of the single smartest moves of his young and arguably brilliant career.

Historical highlights

Here are some highlights of his presentation that he delivered extemporaneously from the main stage.

McChord started Datto the summer after he graduated from the Rochester Institute of Technology with a 2.2 GPA. His first product was a NAS device.

His company was based in the basement of his house and his early employees were his brother, Ian, who oversees product development to this day, and his local friends from high school and college.

His first real product was the Datto 100, which started to sell online after a positive review from the web site Engadget. After it appeared, 14 orders poured in the following day. Unprepared for sales, McChord fulfilled them directly.

Cold call beginnings

Sensing an opportunity, he bought list after list of customers from the Internet. And then he began cold calling organizations by the hundreds. The work was exhausting, but led to new business. After fulfilling the first orders directly, Datto began fielding calls from business partners—MSPs mostly— who wanted to know if Datto offered dealer pricing; it did not. Then McChord got a call asking whether the company had a dealer or reseller program. “We don’t, but call back tomorrow,” he replied. That night, he and his team hammered one out.

McChord quickly recognized that partners had the credibility with customers that he, a twenty-something kid right out of college, did not, especially when it came to customers’ most precious asset—their data.

As the company began the build momentum, McChord began to think about image, branding and market position. He told partners in New Orleans that he originally wanted to name the company Dominos and even envisioned a box with two binary dots that matched. But IBM owns the rights to the name “Domino” in the technology industry and “some pizza company” owns it in the consumer space, he said. So after some thought, he settled on “Datto,” which is the melding of “data” and “ditto”.

Who is Peter Hedge?

As the company began to grow, McChord wanted to give the company some allure. So he began answering the phone with an affected British accent. He then conjured a fictional employee, which he named “Peter Hedge,” who became a sometime voice and then scapegoat at the company. “Peter Hedge has made every single mistake in the company’s history,” McChord told his partners in New Orleans.

“In those days we had no idea what we were doing so we kept going,” he said.

And learning.

Lessons in pricing

One of the early insights he learned was how to better price products. His early products, which he priced twice the cost to make, were priced too cheaply. When he raised their prices, his sales grew. In fact, they doubled. Somehow, he told partners, the higher prices made Datto’s products more appealing—and more credible.

As the company’s credibility grew, so did its personality and culture. Case in point: monitors. For some odd reason, the company’s workforce became obsessed with monitors, which McChord bought by the dozens cheaply online. Many cubicle workers, for example, work with as many as six monitors. One intern equipped his cubicle with a dozen. So long as productivity increased, Datto managers approved the modest indulgence.

Cool company culture

Around the Northeast area, the company developed the reputation as a cool, progressive and innovative place to work. Recruiting was not a problem in the area where tech startups number far fewer than in Silicon Valley.

With growth building, McChord had to find new office space. Though Datto had only 25 employees at the time, he signed a lease for a space that could hold more than 100. “You’re crazy,” people told him. But within a year, he filled it with busy workers.

Data center migration, the tough way

Along the way, the company faced some tough and delicate moments. One of its data center partners, for example, got prickly to the point where McChord went to southern California to reclaim all of his equipment held in the company’s data center. The servers were stored on the seventh floor of a building in Los Angeles and the company refused to allow McChord and a fellow employee use the elevator. So together the duo carried all of the company’s servers—an entire rented SUV full—down seven flights of stairs. By day’s end, they had reclaimed all of their customers’ data.

Other setbacks taught him additional lessons. When one product launch went awry, the company’s business partners howled. But they stuck with him and told him to develop best practices and systems of excellence. The episode taught him volumes about trust and risk taking.

Turning down the early retirement

At its worst, the stress of building a company responsible for “more than 100 people’s mortgages” took a toll on McChord. He sought help for what he thought were panic attacks. But these travails made him stronger, he said. And more focused.

When he was offered $100 million for his company, he refused because he wanted to ensure that the destiny of his workers was as promising as the one he was developing for himself.

“I met Austin McChord a little over two years ago,” said Paul Sagan, a member of the Datto Board of Directors, “and he is one of the most remarkable tech founders I’ve ever met. Clear vision, innovative mentality and incredibly focused on what customers want. Moreover, he’s dedicated to building a real culture and company.”

That’s high praise when you consider that Sagan’s bio notes that in addition to being an “executive in residence” at General Catalyst Partners, a venture capital firm based in Cambridge, Massachusetts, Sagan is also the vice chairman of Akamai Technologies, a director of EMC Corp. and iRobot Corp., and a member of President Obama’s National Security Telecommunications Advisory Committee. (He is also a three-time Emmy Award winner for broadcast journalism in New York, a fellow of the American Academy of Arts and Sciences, and a former Ernst & Young Entrepreneur of the Year in the technology.)

“What I like about Austin is that he has created a unique framework which not only allows but fosters bottom’s up idea-sharing,” said Rob Rae, vice president of business development at Datto.

Future

In a one-on-one interview with MSPmentor, McChord declined to spell out where the company will expand next. But Rae hints that it will be squarely at where customers’ pain points are most. “We want to own something when we jump in,” said Rae.

Where could that be?

As evidenced by this week’s introduction of Datto Backupify for Office 365, which helps MSPs securely backup customer data stored in Microsoft’s Office 365, McChord hinted in New Orleans that he wants to extend the same functionality to those who use Box, Dropbox and other SaaS applications. In the future it could be “tons” of apps, he said.

Somewhere in the world, some monitor company is smiling brightly.