When a Thailand flood tripled hard drive prices, Backblaze couldn't afford them. Gleb Budman's team bought external drives from retail stores, extracted the internal drives, and paid friends and customers $5 per drive to do the same. They acquired thousands this way and kept their backup service running.
Chapters
So third bootstrapping scenario issue. So right now you guys are starting your companies and you're probably thinking like what are the risks to my company? Am I going to figure out the right product to build? Am I going to figure out how to acquire customers? Am I going to be able to find people to work on my stuff? Am I going to be able to raise funding that I need for executing on my plans? Like you've got the various different things that you think about as risks. And when we were starting Backblaze, we also were like, what are all the different things that might go wrong? What we never ever thought was a risk to Backblaze was a flood in Thailand. Right? It's like, what? We're here in San Mateo. That would be very random. Why would we ever consider that? So what we found out was that half of the world's hard drives are manufactured in this one region of Thailand. And so when this region of Thailand flooded, all of a sudden overnight, half of the world's hard drives went away. And our business, eh, kind of relies on hard drives. They're kind of important. So overnight hard drives were almost impossible to buy. and they were 3 times the price. Okay, so what do you do? So again, if we had millions in the bank, we would have been like, well, this sucks, but we're going to take our millions and we're going to just blow our millions on paying extra for hard drives. And there was actually a— one of the big companies offered Seagate $250 million $250 million just for the right to get the first hard drives off the assembly lines when they were manufactured. Yeah, we were a little shy of $250 million, by about $249,999,000, I think. So what we started thinking was this, so what we needed were hard drives to go in those servers, remember the plywood box, we needed internal hard drives, the things that look kind of like this, to go into these servers and we needed about 45 of these every single day to feed the machine accepting data from customers. Well, those drives were like $300, $400, $500 if you could even find them, which you Generally couldn't. But what we noticed was that the external hard drives, which you guys use for plugging into your Mac or PC, those drives were actually still kind of available. And you could get them and they were more expensive, but they weren't dramatically more expensive. They were like 20% more expensive, not 3 times. And so we're like, I wonder if we could use these instead. So we bought a handful of these external drives, And then we did what we called shucking, which is after we took them out of the package, we cracked open the plastic and took the drive out from inside. And it turns out, same exact drive that you can't buy. So we're like, well, that's bizarre, right? So this drive you can't find anywhere, and if you can possibly find it, it's 3 times the price. When you take that drive and you put it inside of a plastic case and you attach a power supply and you attach this cord and you put a manual in and you stick it in a box, All of a sudden you can buy those and you can buy them for cheaper. We're like, okay, I don't know what market inefficiency caused that, but I think we figured out our path. We need to get 45 of these every single day, crack them open and stick them in our servers. So we drew this on our whiteboard. These are the names of the people. These are the retail stores in the area, and we said, your job before you show up at the office every day is to go to one of these retail stores and buy these external drives and bring them to the office. And this is just what we're going to do. And it seems nutty, but you got to survive somehow. So people would drive to the various different stores and do this. One of our guys actually, this is the path he took, and those are all the stores. he stopped at around the Bay Area just to collect drives that we would then crack open and put into servers. I think he drove like 200 miles in one day to do this. So that worked for a little while, but then we had this little problem, which was the stores started saying limit 2 per person. And we're like, OK, so we've got 12 people, 2 per person, 24. We need 45. We've got a problem. So what we then started doing was coming up with other solutions, one of which was to get friends, family, and even customers involved. So we wrote on our blog that we are looking for people to go and buy us hard drives, and if you can go to the store and successfully buy hard drives and give them to us, we will pay you back for the cost of the drive, plus $5 for every single drive that you bring us. So you get a $5 bounty if you can help us. And so we had friends, family, coworkers, customers going to stores, buying drives, and either driving them here or shipping them to us in order for us to keep the wheels on the bus and going. And so this is a picture of— this is a friend of mine, Vladik, This is Christmas Day. I'm actually— I've arrived here with an SUV. All those boxes are full of drives that he has managed to buy from various different places. And I showed up on Christmas Day with an SUV just so we could bring them all to the data center and rack more servers. And so through this process, it seemed insane. I mean, it was like, we can't possibly sustain this. You can't just have everybody constantly buying 2 drives at a time when you need like 1,000 drives a month. But the thing is, again, it's like your options are go out of business, raise prices on customers, which sucks, stop offering unlimited storage, which sucks, stop accepting new customers, sucks, or continue offering the same $5 unlimited backup service to all your customers and quietly in the background run, run, run, run, run as fast as you can and buy lots and lots of drives. So we bought literally thousands of drives like this. Oh, let me finish. So thousands of drives, petabytes of storage that we bought through this process. So the net of all of this is bootstrapping a company is harder in some ways, easier in some ways than raising a venture to do a company. But it's not just doing less. There are actually benefits that you get from bootstrapping. So in the Valley, we focus a lot on fundraising. Like, oh my God, Uber raised another billion dollars in funding. Isn't that awesome? It's like, no, that's not awesome. It's awesome if they need it to grow their business better and faster than they could without it and they can do it efficiently. A lot of companies raise funding and then it's blown and they would have been better off if they had spent the money— spent the time and energy focused on growing their business instead of on raising the funding. So kind of be unconventional around your thinking if you're going to bootstrap. Don't necessarily say the best path is to raise funding, it may or may not be, and don't try necessarily to compete against other people who've raised funding in the same way that they are doing. Build a sustainable business. One of the nice things for us was that at a number of these points we could continue running the business because we had built a business that's sustainable. And by sustainable I don't mean like a green business, I mean a business that can survive. So think about keeping your costs low, think about getting cash in the door sooner than later. Don't wait for years where it's like, oh yeah, we'll just have lots of users and we'll figure it out in the future. That's okay if you're running a venture-funded company where you can wait 3 years before you bring in a dollar. If you're bootstrapping, figure out ways to get cash in the door sooner. And then play the long game. Plan for the long term, like you should have your grand vision, but take one step at a time. Figure out what's the step to get one customer, what's the step to get 2 customers, what's the step to get 3 customers and $3 in the door, and work toward that path.
