It was 12:10am on Black Friday. Dave sat clicking the refresh button on his browser; waiting for the page to reveal Costco’s Black Friday deal…

Earlier in the day, Dave had signed up to be a drive farmer for Backblaze – a Black Friday drive farmer. He joined about 50 others who signed up to buy 3TB hard drives from the Costco web site for $99 each, the Black Friday sales price, and send them to Backblaze for a $5 bounty per drive.

By 12:27am, the sale was live and Dave ordered his limit, 5 drives. That was over $500 on his personal credit card with tax and shipping included. For his effort Dave would earn an additional $25 for ordering the drives and having them shipped to Backblaze. Easy.

As you can see, our Black Friday drive farming was pretty darn successful. Using a combination of crowdsourced drive farmers and experienced Backblaze employees, we’ve gathered over 300 drives with more on the way.

We’d like to say “Thank You” to everyone who signed up to help us crowdsource hard drives. Such assistance helps us ensure that we can continue to provide our customers with unlimited online backup for only $5/month – and that is very much appreciated.

The idea to crowdsource hard drives on Black Friday materialized on the Wednesday morning before Thanksgiving. We saw a flyer for the Costco $99/drive deal and started thinking and talking and debating what we could we do. Of course we could farm ourselves, but what if we could get help… from everyone?! We realized that it was a holiday and people would be busy with their own Black Friday shopping – were we asking too much? We decided to go ahead anyway. The entire campaign came together in about 2 hours – rules, sign-up process, blog post, promotion, everything – it was awesome.

We launched the campaign on Wednesday afternoon and waited. Would anyone sign up? They did! Would anyone actually buy drives? They did! The first emailed receipt arrived at 12:35 am on Black Friday and drives started arriving on Monday. So this past week Cecilia has counted hard drives, gathered up receipts and invoices, and arranged payments to our cadre of newly minted drive farmers. We welcome them to the club.

Oh, and don’t feel too bad for Cecilia, she loves this stuff, especially since she gets to wear her tiara when she counts drives!

The rain started in August and by mid-October 2011, violent floods in Thailand had crippled the factories that helped produce nearly half of the world’s hard drives. As an online backup company, Backblaze fills more than 50 TB of new drives every day. To survive this crisis without raising prices or compromising service, Backblaze deployed every last employee, as well as friends and family, to acquire drives in what became known internally as “drive farming”. What follows is how we did it.

Good morning, your costs just tripled!
Brian, our Buyer, gasped, “$349 for a 3TB internal Hitachi hard drive!” How could that be? The last drive order he placed just two weeks ago on NewEgg was at $129 per drive. He rechecked the SKU three times. He found Seagate and Western Digital prices were similar. What was going on? Over the next few days prices spiked in all of our traditional purchasing channels, everyone was quoting ridiculously high numbers. One “friend” offered us 100 drives, non-returnable, for a mere $568 each – we said no. In a matter of days the cost of the hard drives that are core to our business had jumped over 200% meaning the cost of providing our customers unlimited storage was going to skyrocket as well. We needed a plan.

We didn’t plan for rain in Thailand
We started drive farming in November 2011. The reason was simple, the supply of the 3TB hard drives used in our Storage Pods had dried up – or more correctly was under water. The tragic flooding in Thailand began in August 2011 and by early-October had submerged houses, schools and factories. Over 800 people died and many more were homeless and hungry, with over 1 million people thrown out of work. As the water receded, the human cost of the flooding was obvious and the economic impact was slowly coming into focus. In late-October, it was estimated that up to 50% of the worldwide hard drive manufacturing capacity was lost or damaged. The impact of the lost capacity was immediate as hard drive prices nearly tripled overnight.

Wanted: a really good idea
We huddled in the conference room. CTO Brian stood at the whiteboard listing retailers, store locations and employee names. While we had a storage pod buffer in our datacenter that could last a few months, some industry analysts were already predicting that the drive shortage could last well over a year. Backblaze is committed to providing unlimited data backup, but with our normal channels charging usury prices for the hard drives core to our business, we needed a miracle. We got two: Costco and Best Buy. On Brian’s whiteboard he listed every Costco and Best Buy in the San Francisco Bay Area and then some. We would go to each location and buy as many 3 TB drives as possible.

Shucking is a good thing
The going rate for a 3TB external drive at Costco or Best Buy was $169. Internal drives, like those inside your computer and the ones we typically use in our storage pods, were at least $100 more and were becoming nearly impossible to find, having been bought by HP, Apple and Dell for their systems. Our “choice” to use external drives meant they had to be “shucked” – a process where the internal drive is removed from its case – before being deployed into a Backblaze storage pod. In addition to the price of the drive there were now extra costs to shuck the drives, extra costs to recycle the shucked parts, and once shucked we couldn’t return a bad drive, but it was still less expensive than buying internal drives even if we could find them. Problem solved, Costco here we come.

“Aaargh, there the treasure be”
Backblaze employees Yev and Ken stared exhausted into the car trunk at their treasure – fifty-two 3 TB disk drives. That would be enough for 2 maybe 3 days at the current burn rate they thought as they drove back to the office to unload their bounty. They hoped Damon, KC and the other Backblaze employees would have similar success and we’d add a few more weeks’ worth of hard drives to our stockpile.

The economics of storage pods
Backblaze provides online backup for unlimited data at $5/month. We can do this because we have implemented our own backup and data storage management software on our own Storage Pods. These pods are built from commercially available parts such as 3TB internal hard drives from Seagate or Western Digital, motherboards from Supermicro, etc. Each Storage Pod holds 45 drives or 135 TB of data. We can reliably store and retrieve data at up to 25 times lower than the cost of other services such as Amazon S3 by using our own purposed-designed cloud storage.

Did you really, really, really mean 2?
The “Two Drive Limit” signs started appearing in retail stores in mid-November. At first we didn’t believe them, but we quickly learned otherwise. Sometimes, we talked our way into more, but we heard “2 is the limit” a lot. We started doing “drive math”: 2 drives a day per store, times 3 stores per day, times 5 “farmers”, times 7 days a week is 210 drives. That would be sufficient, but in reality it didn’t work out that way. Stores were stocking out of drives on a regular basis and we really couldn’t farm every day, but we kept at it. One Wednesday afternoon, after working all day at Backblaze, Yev circled the San Francisco Bay hitting local Costco and Best Buy stores – 10 stores, 46 drives, 212 miles on his Nissan.

Family and friends to the rescue
In late November, Brian was banned from buying drives on Costco’s online store, and Billy was banned from purchasing them at any Costco in the Bay Area. Other Backblaze employees were also asked to leave stores empty handed. Other vendors, along with the seasonal demand from Christmas were rapidly draining supplies. It was time to get creative, again. At an impromptu drive crisis meeting, fueled by stale pizza and good beer, we decided we needed to scale drive farming and the idea of friends and family drive farming was born. Emails and text messages were sent, phones calls were made, Facebook posts were posted, tweets were tweeted, you name it – the call went out to friends and family – buy hard drives and send them to Backblaze, NOW.

Simon says, “Raise prices” – Backblaze doesn’t play Simon says.
While we were drive farming other vendors reacted more traditionally. Intel warned that the drive crisis could lower its quarterly revenue by about $1 billion, give or take $300 million. EMC notified its Velocity channel partners, “…our Q1 2012 HDD list prices will rise between 5-15% over Q4 2011 levels.” HP announced that, “…HP will be forced to increase the prices that we charge for certain disk drives”. Dell sent us a nicely worded email explaining that “HDD costs have increased…and Dell’s list pricing has been adjusted as a result.” So while we pondered the economics of renting a truck and driving it across the country buying drives along the way, others raised prices – we would not do that.

Drive farming at work
Stores throughout the rest of the country were also limiting hard drive availability, but now we had more farmers. Drives started to trickle in, 2 at a time. It was cheaper to buy external drives at a store in Iowa and have Yev’s dad, Boris, ship them to California than it was to buy internal drives through our normal channels. Nearly every day the postman would deliver packages of drives from friends and family around the country. Tim would pile the boxes up on a table in the office and every week the van from our pod assembly company would pick them up. A few weeks later the Storage Pods, filled with 45 drives in each, would arrive in the datacenter. There, Sean and Guido would deploy the pods to store the petabytes of data backed up by our customers.

Holiday drive(s)
On Christmas Eve, Gleb, our CEO, stopped by a friend’s house to pick up eighty 3TB drives his friend had acquired when an online site forgot to limit the quantity he could order. It had taken the FedEx guy nearly 30 minutes to unload them and carry them up to his friend’s apartment. As Gleb was lugging boxes of hard drives to his car to take back to Backblaze, he realized that the hard drives he was loading were worth more than the car he was loading them into.

More stories
There are many great adventures from our days as drive farmers, here are just a few…

Getting back to normal
Drive farming continued throughout January and into mid-February of 2012. By then we had farmed 5.5 Petabytes of data storage. Eventually smaller distributors and resellers appeared offering decent prices on internal drives – no more shucking. Throughout the crisis, we didn’t raise our prices, we continued our policy of unlimited storage, and we didn’t throttle our customers’ backup speeds. Prices have slowly decreased over the past several months as Thailand has gotten back on its feet and production shifted to other factories. We recently purchased another 2,000 internal drives to add to our stockpile. Lower prices are nice.

Thank you
We want to say thank you to our friends and family who helped us through the drive crisis; Boris, Cara, Jim, Susan, Dave, Meng, Mike, Ben, Evelyn, Katherine, Randy, Ramey, Lise, Pete, Paul, Vladik, Tasha, Hakan, Alec, Alla, Katia, Leya, Yan, Jessica, Sergey, Mary, John, Eugenia, Penny, Sergey, Rebecca, Tim and many others. We’d also like to thank the retailers who kept the price of external drives reasonable – even Costco.

Yet, even though we at Backblaze weathered the drive challenge it pales in comparison to the challenges faced by the people of Thailand as they continue to recover from the devastating floods that have ravaged their country. Our hearts go out to them. If you wish to help, please consider a donation through Give2Asia or the relief organization of your choice.

Epilogue
On July 25th of this year, Backblaze took $5M in venture funding. At the same time, Costco was offering 3TB external drives for $129 about $30 less than we could get for internal drives. The limit was five drives per person. Needless to say, it was a deal we couldn’t refuse. Old habits die hard.

References:

We started online backup service Backblaze five years ago, determined to help people never lose data again. I’m excited to announce that today we have a new partner, TMT Investments, and some extra cash to help us achieve that goal!

This is awesome news for our customers who have come to rely on our service and for the millions of people who need an online backup service like ours. Oh, and it’s pretty fantastic for us too.

I wanted to spend a few minutes taking you through the process of how we got here. Backblaze is already profitable and growing quite quickly, so you may ask, “Why take funding now?” It’s a good question, so let’s start at the beginning…

Backblaze at the beginning: Bootstrapping

When we originally started Backblaze, we wanted to focus on building the business – not on raising funding. We were worried funding would influence the direction of our product and the culture of the company. We also didn’t want to give away control and a large part of the company.

Thus, we decided to bootstrap. What that looked like was 5 people committing to a year without salary and putting some of our own money into the business.

Typically companies grow while losing money and raise VC funding as an operational requirement. Without funding, there were certainly some lean years for us in the beginning! In fact, an online backup service may have been the craziest business to bootstrap. It turns out that it is incredibly capital intensive to build 40 petabytes of storage, even using our cost-efficient cloud storage. However, we were committed to helping people backup data, were innovative about reducing the cost of storage, went without salaries for a while, pinched pennies where possible…and found our way through the wormhole to a fast-growing and profitable company a couple of years ago.

Considering Funding

While we chose not to raise funding to start Backblaze, we decided we would re-evaluate our decision to bootstrap every six months to make sure this was still the right path. There were certainly a number of companies interested in giving us funding, but we continually decided it was better for us to go without.

About six months ago we had one of these discussions and for the first time said, “Hmm, it might be an interesting time to raise funding.”
There were several reasons why we decided it may finally be the right time:

1. Faster growth
We have been growing about 100% year-over-year primarily through word-of-mouth. That’s excellent. However, with 90% of people still not backing up their data, we have a long way to go. All too often I still hear, “My drive crashed and I lost everything; I wish I’d heard of Backblaze earlier.” We liked the idea of being able to spread the message of backup faster

2. Hiring a bit ahead
Bootstrapping required us to hire people after we had the cash-flow to fund their salaries. This resulted in a healthy amount of rigor in determining whether a new position was really necessary. At times we felt someone was critical but we had to wait to hire them. Funding would allow us to hire a little bit ahead of cash-flow to make sure we get the best and the brightest on board to grow the company.

3. Catching up
After going without salaries in the beginning it would be nice to get back some of that forgone salary from those early lean years. Our significant others are really supportive, but got tired of eating Ramen somewhere around 2010.

4. Keeping control and culture
With five profitable years in business, we felt that our culture was firmly established and that it might be possible to find a partner that would trust us and not feel the need to control the company.

Even with these drivers, if we really were going to go down this path, it had to be with the right partner; one that would be entrepreneur-friendly and would want to help, rather than control, the company.

The Fundraising Process
Over the past five years, I’ve had conversations with over 50 VC’s that had reached out to us. We didn’t want money then, but having those relationships if we ever decided to raise capital seemed worthwhile. I put together a list of all these people. I also reached out to a few fellow entrepreneurs and our lawyers and asked which VCs they thought would be great to have as partners.

I narrowed the list down and it turned out to be surprisingly easy to get initial meetings and follow-up partner meetings setup quickly with a lot of top VC funds. Maybe this shouldn’t have surprised me since we had built a profitable company (which was almost acquired) but it was different from my previous experience raising funding years ago.

One of the most common questions asked of us was, “Why don’t you take more cash? $10, $20, $50 million?” The reaction VCs had to my response helped me realize that while they might be “top VCs”, some may simply not be the right partner for us at this time.

Why wouldn’t we take more money when we could? For the same reason we didn’t take money over the last five years: money isn’t free. And I don’t mean just the equity you give up – that’s the obvious part. Less obvious, but possibly even more important, is the impact that having lots of cash in the bank has on a company. The innovation around the Storage Pods resulted out of necessity; we couldn’t afford to pay for overpriced storage. So much of the Backblaze culture is built on the goals of being focused, efficient and creative. Having a ton of cash could tug at those goals. At our scale now, a few million dollars is useful, but won’t change the culture. With $50 million sitting in the bank, I’m not sure I could say the same thing. Discussions like this one and others regarding growth, what products to build, whether a board seat was required, etc., helped us clarify which VCs saw the same path going forward that we did.

Some VCs expressed interest in investing, some wanted to collect more data and some said it wasn’t a fit. Since we had a profitable company and didn’t need to raise funding, I was happy with the first and last responses; the only path I didn’t want was one that would use up a ton of time we could otherwise spend building the business.

Finding a Great Partner
Early on in the process I mentioned to my friend and entrepreneur-turned-VC, Igor Shoifot that we had decided to explore funding, and he said, “Let’s do this!”

Igor has started and successfully run a number of startups and bootstrapped his most recent one, so he understands what it takes and is passionate about helping entrepreneurs. Over an informal dinner with a few of his partners at TMT Investments I realized that in addition to good chemistry, his partners were successful entrepreneurs themselves and we shared a mutual understanding about the most effective way for us to work together.

Sometimes when a company accepts VC money, its management team gets shoved aside. The new investors bring in their “talent” and start running the business, thinking this would maximize their returns. TMT was a perfect fit because, from the very beginning, they realized we wanted a partner, not a new management team. So, the team that built Backblaze into the company you know and love today, will still be running the show, only with the resources to do more.

We started hammering out what a deal might look like. TMT was reasonable in their requests and open to ours. They were willing to work with us to make sure that the documents reflected our mutual goals and didn’t have a “but this is just the way we do things” mentality – which was a good sign that they would be a great partner. TMT has also made investments in a number of other successful companies such as Wrike.com, Hotlist, Socialize, Ninua, DepositPhotos, PeekYou and Gild, among others.

Decision Point

With a great partner and a good deal on the table, the five founders voted to take the leap from being a bootstrapped company to a VC-backed company. Together with TMT, we worked to quickly get the documents finalized and signed. Well….“quickly” might be an overstatement.

Closing the Financing
In any financing, there are some normal steps: a term sheet, due diligence, final documents and closing. That process alone typically takes months. In our case, there was the added complexity of allowing the founders to sell shares in the financing.

Then, we added one more twist for our lawyers: we wanted to allow not only the founders to sell some shares, but all shareholders because we believe everyone helped us get here and should share in the success. We set a flat, small percentage of shares that anyone – founder, employee or contractor could sell. It turns out this is called a “Tender Offer” and has a whole set of its own rules associated with it, including an extra 20-day waiting period. This is one of those times where having a good legal team was really valuable!

The closing process was full of interesting occurrences: one that stands out is meeting one of the share sellers in Panama while I was on vacation so that he could sign the documents since he’s completely “off the grid.” I’m happy to say that after a little signing party at the office, we now have the 160 pages of legalese behind us.

What’s Next?

We continue to believe that with 90% of people not backing up their data regularly, data backup is still a huge opportunity worth pursuing. Don’t expect us to veer (or pivot) off of our core path. However, do expect us to increase our rate of hiring in order to continue making the service easier-to-use and even more accessible, and definitely expect to see more of us in both the usual and unusual places as we expand our marketing efforts!

If you were in our position, how would you use the new funds to improve Backblaze and our marketing efforts to increase the number of people backing up their data?

Five years. That’s crazy. I can’t believe that it has been five years since Backblaze officially started. While some work started before then, the company was officially incorporated in Delaware on April 20, 2007.

When I think back to a few of us sitting in a one-bedroom apartment brainstorming about what we could possibly to do to help people stop losing data…it’s crazy to look around and see hundreds of servers, all of our employees, and the products, stats, and customers that make this all a reality today.

I wanted to share some of our adventures as we’ve grown from a tiny startup over the last five years:

1/15/07 – First thoughts around what to do about people losing data.
4/20/07 – Incorporated in Delaware.

6/10/07 – Original discussion about “funding” the company by 5 partners working 1 year without salary.
8/25/07 – Brian’s 1-bedroom apartment looking more like an office.

10/26/07 – Office warming party.

11/2/07 – Storyboarding the service we would build.

Continue reading…

I can’t believe we’re already over a week into 2012. In the interest of listening to the quote “perfect is the enemy of good”, I am publishing these thoughts on Backblaze in 2011 now rather than waiting until my hindsight is perfect, which may take another year or more. So, without further hesitation, here are a a few of my favorite things from 2011:

1. Growing sales about 100%.
We’re in a market growing about 30% per year. Growing 3x faster than the market is a bit of nice external validation that the passion we put into helping people backup data is working.

2. Adding some awesome people to our team.
I’m looking at you SBrian, Ken, Yev, and Tasha. We continue to run lean, but have added some amazing people to help us as we scale.

3. Restoring 600,000,000 files.
Ok, if you want to be technical, we restored 598,652,186 files. That is an astounding number of photos, documents, and other critical files that customers lost and then restored in a single year. I remember how upset I was four years ago when I lost a single calendar file; and how thrilled I was to realize that I had been running the beta version of Backblaze and was able to recover it. It is hard to imagine the total emotion resulting from the recovery of those 600 million files.

4. Launching “Locate My Computer”.
After Mark Bao caught the thief who stole his laptop by downloading the thief’s video from Backblaze and Mat Miller recovered his laptop by restoring the thief’s college paper, we launched a free addition to the service: Locate My Computer. Just one month later, that feature helped crack an Argentinian counterfeiting ring and recover $1 million in counterfeit cash.

5. Launching “Backblaze v2.0: Unlimiting Unlimited”.
Listening to your requests, we added the ability to backup unlimited file types and unlimited file sizes. Backblaze v2.0 added a host of other enhancements that increased how quickly your data gets backed up. Video editors and virtual machine users cheered.

6. Open sourcing “Backblaze Storage Pod v2.0″.
When we initially open sourced the Backblaze Storage Pod, we figured five or six people might care. Instead, over 1 million people read the blog post and hundreds of companies and organizations started building these pods. In 2011, we published the designs for Backblaze Storage Pod v2.0 (which had twice the space and performance for the same cost) and a number of lessons learned.

7. Crowdsourcing our first billboard.
Historically we have grown almost entirely organically, but wanted to experiment with a billboard on Highway 101. We decided to crowdsource the billboard. You came up with hundreds of ideas and voted on your favorite. December 19th, our first billboard went live: “Kiss your lost files hello”

8. Adding Restore Downloader apps.
A small but very welcome addition was a downloader app for each of Mac and Windows, enabling you to download a huge restore.

9. Recommitting to unlimited.
In February, one of our competitors said it was impossible to continue offering unlimited online backup because people were storing more data. We strongly disagreed and recommitted to unlimited.

10. Moving to our new office.
Technically we moved in December of 2010, but it was in 2011 that we settled in to our new downtown San Mateo space.

What happens in 2012? We’re going to:
…need more great people.
…enhance the product while continuing to stay laser-focused on simplicity.
…further innovate cloud storage costs to continue offering unlimited online backup.
…expand the ways that people can get Backblaze on their computers.

Want to help us? Share your ideas in the comments below, apply for a job, and help your friends get backed up!

Ignite is a “Fast-paced, fun, thought-provoking, social, local, global” evening of “high-energy 5-minute talks by people who have an idea.” Specifically, as the presenter you get exactly 20 slides that auto-advance every 15 seconds. No running over. No slide remote control.

The theme of the evening was “Lean Startup” a set of principles (clearly communicated by Eric Ries) of building startups in a more efficient manner.

I presented the 5-step process of building Petabytes on a Budget. It was a blast and I highly recommend Ignite events and the Ignite format to anyone wanting to communicate an idea. As they tell you when you prep, a TV commercial tells an entire story in 30 seconds; if you’re crisp you can communicate a lot of ideas in five minutes.

Here is the presentation:

And here are the slides on SlideShare:

Thank you to O’Reilly for starting the Ignite concept and facilitating the community, Sarah Milstein for organizing the entire event, Tony Stubblebine for MC’ing, pariSoma for providing a great space, and DreamSimplicity for providing the video.

After almost four years in our original office in downtown Palo Alto, it was time to accept that we just couldn’t keep stuffing people in the space.

Now I’m thrilled to say that we have found and moved into a fantastic new office!

Thank you to all that responded to our request for office suggestions. Also, a special thank you to Hal Rucker who gave us the tip about the space we actually chose.

How does our office meet our initial criteria?

Not bad

We love San Mateo
Not only is downtown San Mateo a quick jaunt off the 101 and 92, and a bustling shopping and restaurant district, but it is also an active hub for tech startups.

A few of the companies located here that we know about:
* Admob – Mobile Advertising (recently moved after being acquired by Google)
* Backblaze – Online Backup
* Conduit – Toolbar Creation
* Coupa Software – eProcurement in the Cloud
* Epocrates – PDA Medical Software
* Fixya – Community Support Site for Products
* FreeWheel – Video Content Monetization
* Genius.com – Marketing Automation
* Greenplum – Data Warehousing (acquired by EMC)
* Keynote Systems – Mobile & Internet Monitoring
* Lucky Knives – Hal Rucker’s Good Ideas Company
* NexTag – Price Comparison Engine
* Oodle – Social Online Classifieds
* PBworks – Online Collaboration
* Quantivo – Behavioral Analytics Software
* Redbeacon – Local Services Matchmaker
* Spoke – Personal Connections Management Service
* Zeus Technology – Software Application Delivery Solutions

Did I miss your hot tech company or one you know about?
Send me an email and I will add it:

More Office Pictures

Yesterday a number of friends emailed me saying, “You’re on TechCrunch.”

I quickly racked my brain, “Did we announce anything new yesterday…?” Then I looked and saw that what they actually meant more specifically was that my face was on TechCrunch, along with a wardrobe I was selling.

Here’s the quick backstory:
* My wife wanted us to get rid of a wardrobe we were no longer using.
* I posted it on Facebook Marketplace, a social online classifieds service.
* Facebook Marketplace is powered by Oodle.
* Oodle was founded and still led by Craig Donato.
* I knew Craig from Excite@Home and he is a friend on Facebook.
* Through Oodle’s social aspect, Craig saw my posting.
* Craig asked if he could use my post in a preso.
* Four days later I get a slew of emails about being on TechCrunch (and VentureBeat.)

I love the serendipity of being in Silicon Valley.
Now if I could just find a tie-in here to online backup…

(Congrats Craig and team on the success with Oodle!)