If You Knew What Could Go Wrong, You’d Never Start - The Founder’s Leap | Sujal Patel (Part 2/4)

Intro - 00:00:06: Welcome to the Biotech Startups Podcast by Excedr. Join us as we speak with first-time founders, serial entrepreneurs, and experienced investors about the challenges and triumphs of running a biotech startup from pre-seed to IPO with your host, Jon Chee. In our last episode, Sujal shared stories from New Jersey, how his brother's computer sparked his coding journey, and demanding his boss's job at RealNetworks at age 22. If you missed it, check out part one.

In part two, Sujal talks about recognizing that enterprise customers were spending millions on storage systems that couldn't handle media files, why Rob Glaser's response pushed him to leave, and how Paul Mikesell pointed to scissors on his desk and called them the "scissors of opportunity". He shares why launching Isilon in late 2000 meant watching his RealNetworks stock collapse from $100 to $8, how Craig Sherman at Venture Law Group made 50 VC introductions in two weeks, and raising $8,400,000 as Seattle's only Series A that year.

He also recounts landing Kodak by delivering version three software in thirty days instead of sixty, hiring a CEO who took the company public but made critical mistakes, and why firing the CEO and CFO of a public company fell to him just as Lehman Monday hit.

Sujal Patel - 00:01:51: So I'm at RealNetworks. I have this entrepreneurial spike, and entrepreneurial spikes are great at RealNetworks. We went from audio to video to building a broadcast network to going and expanding into other types of consumer experience. We did a lot of stuff in four and a half years. And so being entrepreneurial at that company is great. So I hired people as well who were kind of entrepreneurial. So the people around me were entrepreneurial. As we started to grow that business, it went from audio to video to broadcast networks.

One of the things that started to happen was that enterprises started to pay attention and want to build big networks to put audio and video out on the Internet. And one of the things that we observed as I started to grow my career there, I started to interface with customers a lot more, work with our sales teams. I would watch million dollars of my software go out and customers—I'm like, "Wow. We sold a million dollars software. That's amazing". And then the customer would turn around, and they would buy 4 or $5,000,000 of storage. And the stuff barely worked for these media files. These media files are huge; they have big throughput requirements. They don't look like a text database or credit card database. Like, they were very different. These storage systems were never built for it. And I'm like, "They spent $4,000,000 on this stuff that doesn't work".

And it was really interesting. At the same time that this was happening, two of the largest storage companies on the planet, NetApp and EMC, were both really interested in taking server technologies like ours that streamed audio and video and putting them straight on their storage systems. And so I got their storage systems, and I started to use them. And I'm like, "Are you joking? This is the state of the art in the enterprise that they buy billions of dollars of?". You know, a lot of our technology at Real for our media distribution was based on distributed computing principles, and I had this sort of background from going back all the way to University of Maryland to distributed computing. And I was like, "Why do we have these giant monolithic storage systems that don't scale?". "Why don't we have them be modular so you drop one Lego after the other and you can grow your two terabytes to 200 terabytes seamlessly?"

And that was, like, the spark that created Isilon. And I was like, "I gotta go do this thing". But I was still only 26 years old, and so I'm like, "This is a little crazy". I'm like, "Let me go and pitch this to Rob Glaser, our CEO, and talk to him about it". And I think Rob's like, "Well, that's interesting". But it wasn't like, "Oh, okay. Let's go figure out how we do this". And I said, "Listen, Rob. I'm young, but I wanna go and I wanna grow my set of experiences that helped me to become a company founder at some point. So I wanna be at the executive table. I wanna be in that boardroom and this and that". I remember one of the things he said to me is like, "Oh, the boardroom's kinda boring. It's just procedural and so forth". I'm like, "That is nonsense. I don't sit here and hit all these milestones for the board meeting because it's dry and boring". I'm like—and I'm like, "You know, this is the time. I need to go".

Now picking up another piece of this, another thread here. I told you I've hired entrepreneurial people. And one of the key guys is this guy named Paul Mikesell, who was my co-founder at Isilon. And I hired Paul. He's a little younger than I am, and so he was always taking one role behind me. Right? And so I hired him as an engineer. When I moved up to a multi-level manager, he moved into the management role. And he is an exceptional engineer, creative entrepreneur. And one day, we're talking about this opportunity to go start a storage company, and he was mad at me because I'm just sitting here working away at RealNetworks in my office, and he points to this pair of scissors on my desk, and he yells at me. He's like, "Those are the scissors of opportunity. They're just rotting on your effing desk, and you're sitting here when you could be out starting a company".

And it was kind of interesting. It was like a little kick in the butt that it was—it was good. Sometime a few months after that, I decided I'm like, "Okay. I'm gonna leave on Friday. I'm done with RealNetworks. I'm gonna go and try to start this company". And I took the scissors on Friday, and I handed it to him, and I gave him the same speech. And, you know, that was a Friday. It was a few months before the end of the year, and I got started on Monday on the company. I got far enough along in about a month, month and a half that I went to Paul, and I said, "Okay. Well, I want you to join as co-founder". And so he resigned, and he was ready to get going by January 1. He took the scissors and passed them to a third unnamed person. And third unnamed person's wife talked him out of it. It's like, "Oh, it seems really risky to start a company with these two guys, and we have three kids," and I think he regrets that to this day.

Jon Chee - 00:06:40: Yeah. Yeah. Yeah. Yeah. Yeah. He'll remain unnamed. He'll remember.

Sujal Patel - 00:06:44: He'll remain. If he listens to this podcast, he'll know who.

Jon Chee - 00:06:48: Yeah. Yeah. Yeah. He'll know.

Sujal Patel - 00:06:49: It's him.

Jon Chee - 00:06:49: Yeah. Yeah. Yeah. And, like, you know, when you took this leap of faith, I'm gonna imagine you're starting from scratch. You're at the zero to one phase. At that point, what did you—you're like, "Okay. It's time to go fundraise," or is it, like, is it time to go, like, recruit more people?. Like, what was, like, your day zero game plan?.

Sujal Patel - 00:07:05: Let's talk about what it takes to take the leap first. Right? So we're talking about the last months of 2000, and we're heading into 2001. This is the absolute collapse of the dot-com bubble.

Jon Chee - 00:07:18: Oh my God.

Sujal Patel - 00:07:20: So we're at the peak of the bubble. RealNetworks stock has split twice, and it's at a 100. I leave RealNetworks, and it's a few months before the end of the year, and it's at $30. And I say to myself, "If I sell in January, it has a chance to recover, and then I don't have to pay the tax on that—" because I'm the young tax fighter. I've got finally estimated taxes. I don't have to pay that for, like, fourteen, sixteen months until April of the year after. So I'm like, "I'm gonna hold till January. I'm so smart". And then in January, I sold the stock at eight, and then it fell to, like, one and then kept going down from there.

Dot-com bubble. That's what happened. So for me, getting a company off the ground, there's a lot of blind faith in it. Part of that is just you're young and you have no clue how hard or how much risk you're about to take. And as well, I have no care in the world. I was married; I don't have any kids. I just have to take care of myself. It's like, "Well, let's go take $400,000—350 of mine and 50 of Paul's—and let's go dump it in and see what happens". And we didn't know how hard it would be, but we got it done. Right?

So January '01, we got going officially. We hired two people right off the bat that were from RealNetworks. We stole them. We got our nasty letter that said "stop stealing our people," and we played off for a little bit. We started hiring a little bit externally with that 400,000, and we started raising money immediately because we knew that what we're trying to build, like, the bare minimum MVP product, is a few years of development and tens of millions of dollars. And so we went out and we said, "Okay. We gotta go raise some money".

And I had a few early kind of VC conversations, friends of friends in December, but we really needed to hit a lot of VCs because the climate was getting worse and worse and worse with the dot-com collapse. And so I met up with a guy named Craig Sherman, who was at Venture Law Group, and he's now at Wilson Sonsini—well-known corporate securities attorney in Seattle, still practicing today. And Craig is like, "This is a great idea, and we would love to help you get it off the ground". And it was the collapse of the dot-com bubble, so I don't think there were any other clients. So he's like, "Alright. Let's go". Craig made 50 VC introductions for us, and he did all of that basically in the span of, like, a week or two.

And so out of those fifty, forty of them took first meetings because they don't have anything else to do. There's no new investments, and it was a crazy process. We spent three days in Silicon Valley and two in Seattle doing investor meetings full-time, basically, or investor decks, customizing decks, like, pretty much raising money. Paul was building products and dragged into these meetings as needed. And we met with these VCs. Some of them took five, six meetings because they're like, "Well, let's keep talking about it. I like it," but they couldn't move. The dot-com bubble is collapsing. You would have a VC who's interested, and then the next day, they take over as CEO of a portfolio company who's worth one-one hundredth of what they were a year ago. Complete mess.

Even with that mess, though, you know, Madrona Venture Group, which is top VC in Seattle if you ask me, Atlas Venture got to the finish line, and we closed an $8,400,000 round—point four of the founders, and eight of new money. And that's really what got us off the ground at that point. Then we could really get, you know, thirty, thirty-five people hired. We can start building the product, get to the next milestones. But, boy, was it crazy. In that year, 2001, we were the only Series A funded company in Seattle.

Jon Chee - 00:10:51: That is brutal.

Sujal Patel - 00:10:54: Well, I mean, Seattle was much smaller back then too, but yeah, it was brutal, brutal time.

Jon Chee - 00:10:58: That's crazy. Yeah. I can't imagine. Like, I think to go back to something that you said that, like, stood out to me, is that initial kind of naivete—that leap of faith is kind of necessary, and you just don't know better. Because, like, in the same fashion, when I started Excedr, the first piece of equipment that we bought and put out on lease, I just bought with my life savings. That's not financial advice. Please don't; that is not financial advice.

Sujal Patel - 00:11:26: A trait of entrepreneurs. We have to have blind faith because—use Nautilus as an example, which I'm sure we'll get to talk about—if the path to build what we're trying to build is not a path any sane person would go down, but it's a path someone has to go down because the world needs what we're building, you gotta have blind faith as an entrepreneur. Right? You gotta believe.

Jon Chee - 00:11:47: Yep. Yep. Spot on. And—and I think too, like, yeah, if you—it's kind of like that Jensen Huang kind of thing when he was talking about it, about how if you know everything that could go wrong and does go wrong, no one would start a business or anything of the sort. You would just be like—no, it doesn't make sense, you know?. And, also, what a—with that timing, like, that kind of sprint to meet all those VCs and getting it done sounds like what an absolute whirlwind. What was the—I guess—take us by—what would be the tone and energy?. Were people just absolutely terrified?. What was the kind of just the zeitgeist at that point?.

Sujal Patel - 00:12:24: Yeah. It's kind of interesting. So I think that it was a time where there were a lot of associate-level people at the VCs who—there's not a lot of company formation. The world's melting down. They're just going and taking meetings with people. They're including five, six meetings. "Let's keep talking about it". They're interested, but they're watching this fire around them that's closing in. The senior people, a lot of them were very distracted with what's going on, figuring out how are they gonna triage their portfolio company, can they survive and raise another fund, which is, you know, the lifeblood of venture capitalists?. Like, it was absolutely crazy.

And the other piece of this that made this complicated was that startups in the storage—the enterprise storage space—is a massive space, 100-plus billion dollars of annual capital spend. It's a really big space, big software opportunity labor or big, big services opportunity, software opportunity behind it. And so it's always been highly competitive. We were in a class of 200 storage startups, like 150 founded before us and 50 after. That's kinda like—we kinda consider it a class. Right? Out of that class, there's, like, three or four, maybe five that made it to the finish line. Isilon and Data Domain had exits that were pretty similar to each other. BlueArc sold for about a half billion. There's just not a lot of companies that, like, in that class that made it to the finish line.

And so you would get into these meetings, and they'd be like, "Well, what about StorageApps and Zambeel and this and this and this, and how do you compete against that?". And every single one of these meetings is about, like, navigating that and figuring it out. And you gotta be fast on your feet. You gotta figure it out. Jeff Rothschild, who was the first VP of engineering at Facebook at the time—he was, I think, at Accel, and he was one of their venture partners. And he sat there and absolutely grilled us for hours on the technology and "how do you compare against these people" and this and that.

And at some point—and we're a commodity hardware with smart software; that was our storage system—at some point, he asked me, "How do you use serial ATA in these systems?". And I said, "Well, the great thing about our system is that it's based on commodity hardware. So no matter what improvements come along like serial ATA, we incorporate those improvements, and the software quickly adapts. And blah blah blah". I get out of the meeting; my co-founder looks at me. He's like, "What's serial ATA?". I'm like, "I don't know what it is". Then we Google it. We're like, "See, my answer was right". Like, yeah, have to work your way through those conversations and bite your way through it.

Jon Chee - 00:15:03: Holy moly. Oh, man. What an—and that must have been an intense conversation and grilling. I can't imagine. And you get through it. You navigate. You thread the needle. You raise the first Series A. Talk about that phase of utilizing kind of that capital to grow, build the MVP. What was that era for Isilon?.

Sujal Patel - 00:15:24: So that first bit was all about get going on the basic technology and make enough progress that we could raise a Series B. Right? So by the time we got to Series B, we wanna have an alpha of the system where the file system works, where I can have three separate computers with software—what we call nodes—that work together as one system. And if you have four, four of them work together. Like, the basics of that is a lot of work, and there's a lot of underpinnings that need to go into it to ultimately end up building a reliable system.

So we got enough of that done that we would be able to go out to get Series B because the Series B was critical. That was the money that would take us to commercialization and first revenue, and that's a really big milestone for us. So as we got through the first year and we started to think about raising that Series B, we got to that alpha, and we're like, "Okay. Let's go out and figure out who we're gonna raise our—Series B from". We had a pretty targeted list. The world had normalized slightly since the dot-com bubble collapsed at that point. And we started to take those meetings with our VCs—and interesting stories in there as well. Right?

We met with quite a few folks, and we stayed away from Sequoia Capital. Ultimately, we did have—lead that round. We stayed away from Sequoia because they were an investor in NetApp, which was our arch-nemesis at the time and the company that we wanted to basically take all their revenue, and we stayed away. And—I don't remember exactly how—but at some point, they're like, "We don't care. Like, it's not an investment of ours anymore". I'm like, "Well—but your founder who sits in that room is still the, I think, the chairman of NetApp". Dan Warmenhoven was the CEO, and Don Valentine, I think, was still the chair of NetApp at the time. And I'm reluctant, but I'm like, "Alright. Let's go meet with this guy, Greg McAdoo". He's a young partner there; he's a good guy. And Greg and I hit it off.

We talked about the business. He loved the relentless focus on this customer segment in video and audio and media and unstructured data. And we get to a partner meeting with those guys, and they're like, "Do you want Don in the room or not?". "He's the chairman of NetApp". I'm like, "Well, he's founder of Sequoia. I should let him be in the room". They're like, "Yeah. That's the right decision". And we did the pitch, and Don and Pierre Lamond—one of the other, I think, one of the other founders of Sequoia—asked some tough questions and some of the other senior folks at the time, and they're like, "Okay. Let's go do it". So those were the Series A, Series B. Those are the two that got us to a point where we could get to a commercial product. And plenty more stories from there, but I can pause there for a second. Those are the early years that got us off the ground.

Jon Chee - 00:18:00: Holy moly. And from the Series A to Series B, how much time was that?.

Sujal Patel - 00:18:05: So 2001 and 2002, we spent building the very first MVP that we could ship. We shipped at the very end of '02, so that's two years. That was version one. I would have trusted my own digital photographs to version three. So probably a year before we really had something that was stable and worked well. And so it was a quick process. And those early days—raise money and build product and everything else we had to learn along the way. How do you name a company?. How do you negotiate office space?. I think I bought some book at Barnes & Noble to figure out how to do that, you know?. "Oh, I need office space. Let's go find some dot-com who's collapsed and has space and convince them that we're not gonna damage the walls or the paint". All those sort of early things. But, really, get far enough along to get an MVP out the door was the big thing for us.

Jon Chee - 00:18:56: Very cool. And as you're shaping the MVP and getting to the point of something that you can commercialize, tell us a little bit about the storage space. Like, what was the market like, and how did you guys—you talked about your cohort of hundreds of storage companies. What was it that you took to market that really disrupted the market and status quo?.

Sujal Patel - 00:19:17: So let me describe it for you. I'll tell you some of the hardship that you have while you're doing this too. Right? So what we said was, "Your NetApp machine is great for a database full of text information, a name of a person on the airline ticket, and the price they paid in the fare class". It's great for these enterprise applications. But in this world of data, it's video, it's audio, it's machine-generated data, it's large files that need to be processed in some way at high throughput. Those systems don't work because they build file systems that are kinda small.

And in addition to that, they don't scale their performance. NetApp sells you a machine; it's a monolith. And at most at the time—it's probably not much better today—you could put 16 terabytes in a drive. And when your box ran out of performance, they'd sell you the bigger one. And when there is no bigger one, you're out of luck. And what you end up doing is you end up having a C drive, a D drive, an E drive, F, G, H, I, J, K, all the way to Z, each with little 16-terabyte chunks. So then you're like, "Well, Bob gets that 16 terabytes, and Jane gets that 16 terabytes, and you and you, you split the 16". And then this person grows, and I have to move this one over to here, and that one blew out of their 16; this one's underutilized. You add all of that up, and it's incredibly wasteful. And I have a team of storage engineers who are moving data all day, and that's the status quo.

Now here's the hard part. We go in and we say, "We've got this one giant C drive, grows from hundreds of terabytes to petabytes of storage, thousands of terabytes of storage. It scales in performance. You need less storage engineers, and it's just the greatest thing since sliced bread. It's way cheaper". And the customer's like, "Well, I already have the storage engineers. We're trying to save the storage engineers here; don't take my job away". And then worse is—we go in with this pitch: "It's so much cheaper, so much cheaper," and then we show them the price. They're like, "That's not cheaper. That's more than I paid today". I'm like, "Oh, but you don't understand. They're selling you raw capacity, which is underutilized and it's inefficient".

And so we show them, like, this poker hand of—you do this, so you have this, and this card, then it's gonna be way cheaper. And it's true, but you have a lot of selling to do, and—and we're not gonna discount because you gotta uphold that price. We ultimately at Isilon hit the highest gross margins of any network storage company in the market, and that was because you could defend that value over time because all that software made your life easier. And so that was the value proposition. So when we started selling, we went after Internet streamers, media and entertainment companies, companies where this problem was prevalent first.

And so one of our first customers was Corbis here in Seattle. Corbis is a digital stock photography outfit. They've got millions of photographs; they need to put them somewhere. And as we started to grow in 2003—another fun story—we acquired Kodak as a customer at the time. Kodak was transitioning from film cameras to this service where you put your digital photos in the cloud, which is one of the first services to do that. And so we acquired them as a customer. They became a very large anchor customer for many years after that point, and they sort of kinda built one step at a time.

Jon Chee - 00:22:29: Very cool. I can't imagine when you're trying to sell a novel product and having to convince—when the price feedback comes back as "that's not that much savings"—and then having to actually get them to envision a world where they—and also there's a lot of momentum that's kinda like inertia. "We're already built this way." So it's like you're almost fighting this uphill battle.

Sujal Patel - 00:22:52: That's right. And it was like that for all ten years of selling, whether part of EMC or Isilon. Every time it'd be like—sales reps: "It's so much more economical and this and that". Then we said that because their first quote, they're like, "It costs how much money?". And yeah—it's like—well, it's high value. That's why it costs money.

Jon Chee - 00:23:10: Holy moly. And I guess there probably isn't just one trick to get that across the line. How do you get someone to adopt this novel technology?. And—exactly what you said—how do you win that uphill battle?.

Sujal Patel - 00:23:24: It's much like any new technology introduction. Right? You find the early adopters, the people who wanna bet their career on doing something new and novel, who are attracted to technology, people who are gonna partner with you to work through issues. You find those people, you acquire them, turn them into your champions, and you grow. As we continue our story, we can pull on one of those threads. Like, once we grew in 2004 and 2005 into the biomedical research space, we acquired a customer, Cedars-Sinai Medical Center, where the buyer was Parag Mallick—who is my co-founder at Nautilus. All these threads that are behind my career. They're the same type of thing. You find a champion. They're an early adopter. They wanna work with you. They come to your sales conference and speak; you build relationships. Those relationships go on for a long, long time.

Jon Chee - 00:24:10: That's very cool. Yeah. And I love that because—thinking about the life sciences—sometimes we can be very insular in the way we do things, but there's so many lessons that you can learn from adjacent industries, like your go-to-market with Isilon. There's striking similarities when a biotech startup is trying to strike a partnership with someone at a large pharma. You gotta find someone—that early adopter who's willing to bet it inside the large organization, get them to champion you, and so on and so forth. And it's like, across domains, you kind of see there are these so many good learnings that you can have regardless if it's coming from within the life sciences or outside the life sciences. So that's really fascinating, and it sounds like you started to really get momentum. You got Kodak. You're starting to bag some big names. From there, was it still another thing where you're like, "We gotta go raise another Series C?". Or was this at the point where you're just focus on growth, less fundraising?.

Sujal Patel - 00:25:05: You have to do both. And the Isilon story has lots of twists and turns in it. We acquired Kodak, I think, at the end of '03. It was really interesting in that Paul Mikesell, my co-founder, and I took a meeting at Kodak, and they finally decided, "Okay. We're gonna go and buy your product, and we need it to be fully installed and up and running by September 30 or maybe October 30," because they go into an infrastructure freeze heading into the Christmas season, which is half the business for them for the year. And they're like, "We have to have the 3.0 software". That's the one I told you I would have trusted my own digital photographs to. And Paul and I looked at each other; we're like—there's a little more than sixty days of stuff left to do on that product to get it out the door, and they just told us it has to be installed in thirty days. Not done—like, installed and running.

I get back, and I have a meeting with Paul to figure out what we're gonna do about this. And Paul, being a good entrepreneur, has already told his team we're getting it done in less than half the time. And I'm like, "Paul, how are you going to do that?". He's like, "I don't know. We're just gonna go do it". And we did. We got Kodak. Kodak was important because at various times in our company's history—if you went and looked at our revenue, the revenue in '03 was around 2,000,000, '04 was around 7, then 21, 65—it went public, and then there was a recession and so forth. So it was 89, 121, 124, and then there was an explosive year after, which led to the acquisition of the company. But some of those early years, Kodak was half of the company's revenue for the year. It was a massive, massive customer. I would go down to Emeryville all the time to go visit them. So it was a really important customer for us.

I mentioned Isilon's got lots of ups and downs. When I founded Isilon, I was 26 years old. I knew at least that I was a little punk and didn't know anything, so I never really got attached to this. I'm like, "I'm gonna hire someone at the right point". And we spent a long time to find the right person. After that initial set of Kodak deals and we were really, really moving in '04, we did hire a CEO who was with the company in '04, '05, '06, and a little bit of '07. A lot of good came out of that decision. I learned a lot about how to build a go-to-market organization, how to get the company moving in the right direction. A lot of difficulties as well.

This person who we hired spread the company way too thin across too many vertical markets, across too many products, didn't make the best hires—CFO, head of engineering—lots of issues. And it was masked by the fact that the product was really good, and we were on this explosive growth trajectory. But even as we went public, there were cracks in that armor. And after we went public, it did break. We were public for only three quarters, and every quarter was a disappointment to Wall Street. And then by the third disappointment, there were some really big problems. Like, the CEO and CFO had pushed too hard with some customers and some deals. They probably recognized things as revenue that were not really revenue or recognized too early.

And that was an opportunity for me to go to our board and be like, "Hey. We have two sets of problems. We have an immediate problem. Some of these revenue recognition issues are massive problems for the CEO and CFO that have to be dealt with immediately". And then I'm like, "And then we have a structural problem. I look around the table, and these aren't the people that I would want around the table to build the company from where we are today, which is call it roughly $20,000,000 a quarter to roughly 100,000,000 a quarter, which is what we sold the business at". And the board trusted me enough to say, "Okay. Let's fire the CEO and CFO of a public company on one day, put me back in charge, bring my corporate controller into the interim CFO role". He ultimately became the CFO and then replaced me post-acquisition as president, and we turned the thing around.

But that was a process of: go public at $13, help the price shoot up to $26, and then bottom out at the bottom of the financial crisis after Lehman Monday—and all of our difficulties bottomed out below $2 a share. Many companies have ups and downs. I could spend the next hour unpacking all of that for you. But once that occurred, we cleaned up the accounting, cleaned up the process and systems, and then I rebuilt the whole management team. Of the management team that was there at the time, the only survivors after I finished rebuilding were the head of HR—who's still my head of HR here at Nautilus now—our general counsel who's gone on to—he had four straight companies including Isilon that went public while he was the GC. Pretty good career.

Jon Chee - 00:30:02: Wow. That's incredible. And also just like what the timing—starting right when the dot-com bubble burst and going all the way to '08.

Sujal Patel - 00:30:13: It was brutal. Because we went from one thing after the other. October '07 was the leadership transition back to me, and then we got our plans in shape. I started rebuilding the exec team, then we smashed right into Lehman Monday. And I told the board, "Hey. We got a lot of good things going on. I'm not gonna cut expenses, which means cut headcount, which is very painful right now, but this is what I'm looking for". And if I don't have it, I'll be ready to do it the first week of the next quarter, and we did, and we hunkered down. Every quarter was a growth quarter year-over-year for the history of the company, but some of them were 1%, 2%. But we kept working on improving the business and improving our operations.

We—I told you—we were in too many vertical markets; we went from seven to five. We rebuilt the executive team. We can talk about my head of sales—fun stories there on the head of sales who took us to the acquisition, who we hired during that time. And all that stuff worked as we started to get to the end of '09. The recession was starting to abate. We finally posted a break-even quarter with some nice growth. And then 2010 was a ludicrous blockbuster year for us. If you looked at our Q1 through Q4, every quarter was profitable. Every quarter was cash-flow positive, and then the growth rates from Q1 to Q4 were something in the forties year-over-year, then fifties, then sixties. And then the last quarter—we didn't post because EMC bought us that quarter—but the bookings were up 90-something percent year-over-year. That was a year where we acquired another customer who did 10,000,000 that quarter and then did close to 50 the year after. Just the one customer. And so really, really, really crazy momentum.

Jon Chee - 00:31:55: Holy moly.

Sujal Patel - 00:31:56: I mean, you do a lot of things. You don't know if they work, but when the recession finally is done, you find out if everything you did was correct or not, and a lot of it was good.

Jon Chee - 00:32:06: That's wild. And two questions. I guess, when you guys went public, how was that experience?. I mean, it's your startup; you took it public. Was it just a breeze?. Was it kind of like your VC sprint?. What was your going-public experience?.

Sujal Patel - 00:32:21: It was an interesting experience. One, obviously, founded the company; it went public. There's a huge financial outcome that comes with that. Not that you are liquid, but it's there on paper. Unbelievably exciting. But there was also a lot of unease. There was a lot of unease with the fact that I was watching the early metrics. I know that the guidance was out there a little bit; I'm worried about the CEO who's a big promoter. And for me, I was a little bit one step on the outside of that process.

Our CEO had a very large ego and didn't have me on the roadshow team that took us public. It was him, the CFO, and the head of marketing. They made a bunch of promises. I was one step outside of that; I didn't know exactly what they had said, what they did, but I knew I was a little worried. So there was a combination of being elated and worried at the same time. That sort of came to fruition. Like, the next quarter, it didn't quite get to the whisper number. The stock fell. Wall Street was disappointed. The second full quarter as a public company was not good.

I remember the head of marketing and the CEO put up a presentation, and they're just like, "We're on the right track. Look at the multiplicative effect of all these great things we did. If this thing happens, then that builds our revenue, and then that reinforces this, and then we did this". And you look at it, you're like, "This is a great McKinsey presentation, but I don't see how that's real". And then that happened again in Q3, and that was when it was time for a change. And as well, they pushed too hard on some things that were fatal for CEOs and CFOs. So that was a tumultuous time and definitely a lot of mixed emotions through that process.

For me personally as well—when it rains, it pours. I mean, it's a bad analogy for this case, but this is also the exact same time that my wife was pregnant with twins. So October 2007 is when I took over as CEO again. We fired the CEO and CFO in one big day. December that year is when I had twins that were born. And so I don't remember the year after because I don't think I slept. Anything other than take care of children and work. So, crazy times. Right?.

Jon Chee - 00:34:40: Crazy times. And talk a little bit about the run-up to the acquisition. I mean, you went from tumultuous to just knocking it out of the park.

Sujal Patel - 00:34:47: Yeah. And very quickly. So in 2009, as the recession was slowly starting to work its way out, we continued doing a lot of good things in our business. I inherited the business at negative 40% operating margin. In '09, we lost very little money, and gross margins were up. The customer base was more diverse; go-to-market was more focused. We replaced our head of sales; we replaced our head of engineering. Everyone was replaced except for the head of HR and the general counsel. One of those was replaced twice, so it was a lot of change.

And then, when you change that many people on your executive team, they go and replace their next level down. So two-thirds of the leadership team was new as well. And so lots of new faces. We got everyone dialed in. And then, really, as the recession started to break and our technology was continuing to advance in its capabilities, like, 2010 was a spectacular year for us. Really exciting.

Jon Chee - 00:35:41: Wow. And you mentioned that you had a pivotal VP of sales?.

Sujal Patel - 00:35:45: Yeah. It's a great story. The previous CEO had brought in a guy who was a really great guy—he's had a very successful career—just not right for our stage of company. So during this rebuild process of the exec team, I had a very careful order for what I was trying to do. And I knew ultimately I would have to deal with the VP of sales, but they were last on the list. Somewhere along the line, this guy George Bennett—who ran central for NetApp, which was the company that was our arch-nemesis, then ran all of the Americas and was a really senior guy there—he came to us and sent a letter to me, a physical letter. He said, "Hey. Here's my background, and I'm interested".

And I'm like, "Well, I don't have a job open, but I have to go meet this guy". Had him over for dinner, and what he told me was—very successful career. It was the second time by that point that he had run a sales force that went from sub-billion dollars to billion dollars. It was an incredible talent. It turns out that him and the CEO of NetApp disagreed on targets and strategies, and so he decided that it's time to leave. And I said, "Well, how'd you get to me?". He's like, "Well, I said I have 10 companies that I wanna go work for. I sent 10 letters, and you answered".

And I told him, I'm like, "Listen. I don't have the job open. I really can't disrupt right now, but I love you" and blah blah blah blah. And he's like, "Well, I can't wait. I'm gonna go take a job". And I said, "Well, listen. Sometime in the future, I'm going to come to you, and we're gonna work together". And he's like, "Okay". And he disappears. And then he goes and takes the head of worldwide sales at a company called Quantum, which is another—but oddly—another Seattle-based company.

And he goes off and does this thing, and I get to the point where I now have to go and replace the head of sales. It's only been nine months, ten months since I said no to George, and replacing the head of sales is hard. I didn't wanna have a recruiting process because, luckily, it's back to your current head of sales just like that. And I was very worried about disrupting. So I called up George, and he's like, "It's only been nine months. I'm new in the job". And I basically gave him a pitch that said, "Listen. You're just gonna sit down. We're gonna have dinner, and I'm going to show you why this is the opportunity of a lifetime and why you're the perfect guy for the job. And at the end of this, you're just gonna say yes".

And he went in very skeptical, and I came out and I pulled him out of that company in less than a year. And he was transformative to our business. He made a ton of hires, great shift in the culture and the training of the sales force. And we were the third time he grew a sales force from sub-billion to a billion because he stayed for two years with the acquirer, which grew it past a billion dollars a run rate.

Jon Chee - 00:38:22: Wow. Talk about just an absolute ace.

Sujal Patel - 00:38:26: And I stayed only for twenty-three months because I committed to Joe Tucci, the CEO of EMC, I would stay till we hit a billion run rate. Twenty-three months, billion-dollar run rate.

Outro - 00:38:37: That's all for this episode of the Biotech Startups Podcast featuring Sujal Patel. Join us next time for part three where Sujal recounts the intense EMC acquisition negotiation, how Pat Gelsinger showed up with the head of M&A, and why he told them the price could be a $100 per share if they hung up. He'll also unpack the Saturday phone call where Harry You said, "You can name your number, but it cannot be $34," calculating $33.85 on the spot and serving as president of EMC's Isilon storage division before taking four years off.

If you enjoy the show, subscribe, leave a review, or share it with a friend. Thanks for listening, and see you next time. The Biotech Startups Podcast is produced by Excedr. Don't want to miss an episode? Search for the Biotech Startups Podcast wherever you get your podcasts and click subscribe. Excedr provides research labs with equipment leases on founder-friendly terms to support paths to exceptional outcomes. To learn more, visit our website, www.excedr.com. On behalf of the team here at Excedr, thanks for listening. The Biotech Startups Podcast provides general insights into the life science sector through the experiences of its guests. The use of information on this podcast or materials linked from the podcast is at the user's own risk. The views expressed by the participants are their own and are not the views of Excedr or sponsors. No reference to any product, service, or company in the podcast is an endorsement by Excedr or its guests.