How Ellen Rubin’s CloudSwitch got big businesses to adopt the cloud

Do you remember back in 2008 when you were all excited about the cloud?

Well back then the founder you’re about to meet, Ellen Rubin, noticed that big businesses were intrigued by the cloud. They were curious about it, but they couldn’t jump in the way that you and I could when we just wanted to upload our photos to the cloud. It was a lot more difficult. It was overwhelming for them to make the move.

So Ellen started a company called CloudSwitch that made it easier for companies to keep their data centers and use the cloud as an extension. I invited her here to talk about how she built that company and how she sold it about three years later.

Today she runs ClearSky Data. It’s a managed service that combines the performance and availability of local storage with the performance and economics of the cloud. We’ll talk about what that means later in the interview.

Ellen Rubin

Ellen Rubin

ClearSky Data

Ellen Rubin runs ClearSky Data, a managed service that combines the performance and availability of local storage with the performance and economics of the cloud.

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Full Interview Transcript

Andrew: Hey there freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy.com. It is home of the Ambitious Upstart. This is a place where I interview entrepreneurs about how they build their businesses for an audience of real entrepreneurs who are building their businesses right now. That’s why I like to get into the details of how a company is built.

Do you remember back in 2008 when you were all excited about the cloud, your friends were already using it and you were using it for personal storage? Maybe even your company was using it at the time. Well back then the founder you’re about to meet, Ellen Rubin, noticed that big businesses were intrigued by the cloud. They were also curious about it, but they couldn’t jump in the way that you and I could when we just want to upload our photos to the cloud. It was a lot more difficult. It was overwhelming for them to make the move, so she started a company called CloudSwitch that made it easier for them to keep their data centers and use the cloud as an extension of their data centers. I invited her here to talk about how she built that company and how she sold it about three years later.

Today she runs ClearSky Data. It’s a managed service that combines the performance and availability of local storage with the performance and economics of the cloud. We’ll talk about what that means later in the interview.

This interview is sponsored by the company that will help you get your website hosted properly. It’s called HostGator. I’ll tell you more about them later. It’s also sponsored by the company that will help you hire your next incredible developer. They are called Toptal. I’ll tell you about them later. First I’ve got to welcome Ellen. Ellen, it’s good to have you on here.

Ellen: Hey there. Thanks, Andrew.

Andrew: You know, I was typing that intro so fast as you and I were talking that I left the typos in. I said, “I’ll just be able to read it” and I wasn’t able to read it. It had too many e’s and q’s somehow in the intro, but it worked out well.

Ellen: I’m glad to be here and thank you for making a good effort there. I’m sure we’ll get it all figured out in the next couple minutes.

Andrew: I know we will. I want to find out how you built this business, but let’s start at the end, actually and talk about the day that you sold. You told Jeremy Weisz, our producer here that you had a party. What kind of party did you have to celebrate the sale of this business that you started?

Ellen: Well, it’s always a bit of a bittersweet feeling and in the case of CloudSwitch, we were only three years in so the company was still very, very young. It was really pretty small, so everybody knew each other very, very well. I think we had a moment where we kind of looked around and said to ourselves, “Hey, this is a really great opportunity to become part of Verizon. It’s one of the biggest companies in the world. It’s really investing heavily in cloud. The [inaudible 00:02:59] the cloud is going to be really strategic to them and it gives us an opportunity to be part of something that is at sort of a level of global reach and accessibility to customers that would be really tough for us to get to on our own in any foreseeable period of time.”

There was definitely the celebration part of “Wow, this is exciting. It’s good for shareholders, it’s good for employees and everybody feels good about that.” That’s a good feeling, right? You want to have created some real meaning for all the people involved, but it’s a little bittersweet, because you definitely have a sense of the first stage of the story is ending and it was your baby but now it’s going to belong to some other people who are going to take it to the next stage. It was definitely an interesting moment in the world of cloud computing back at that time and it was exciting for us to be a part of.

Andrew: Soon after that, you and your husband hung out in hotels for about a week.

Ellen: That’s true. Personally, I was pretty exhausted. The process of both running the company while out there working through an acquisition is like two full-time jobs. There’s a lot of stress because you know that while this acquisition conversation is going on, you can’t really talk about it with anybody. It’s definitely very confidential and you also know that if it doesn’t work out, the company needs to go forward, so what you really want is you want to make sure that you’re making smart decisions while this is all going on that would allow you to go forward and do whatever needed to get done; raise more money and continue to build the sales and marketing organization. Having both of those things going on sometimes causes . . . it’s almost like you have this weird, sort of split down your brain. “Now I’m in that mode. Oh wait, no I’m back in the other mode.” I think after all that it was a really good thing to take some time off and just breathe.

Andrew: So you did just a weeks’ stay at a hotel in Boston and the company was in Boston, so you just said “Let’s get away from the house and go sit somewhere and just be together.”

Ellen: Yeah, we didn’t have a lot of time to get anywhere, so we had kind of a — what do they call it — staycation.

Andrew: Yeah. I’ve done that with my wife for one of our anniversaries. We don’t have a TV and we said, “We’re so exhausted. Let’s just go do a TV vacation. We’ll find a really nice hotel, we’ll just stay in, order food in and just relax.” It was a fun trip.

The whole thing started when you noticed the enterprise needed to and would eventually go to the cloud. I’m wondering, what were you doing that allowed you to have that insight into the future?

Ellen: I’m always looking at the world through the lens of the business decision making of the customers or partners that we’re going to work with. I’m by training more of a sales and marketing person. What ends up happening is that I always end up teaming up with a technology co-founder that is a partner and person that we work very closely together with in those early days of trying to imagine things and come up with where the idea could go. I definitely had thoughts about what was going on for the enterprise customers that I had been working with and selling to for many years already and that kind of gave me some insight into where the pain would be.

I don’t know if you’ve ever been inside an enterprise data center personally. I don’t know if that’s anything that you’ve ever done, but first of all it’s really interesting. You know, how do things actually get developed and how does architecture get delivered and all these things? It’s just a very physical, enormous, complex [inaudible 00:06:31]. There are networking cables everywhere, all these servers and tons of storage arrays. Everything is all hooked together, it’s really hot and there’s air conditioning. It’s really pretty nutty.

When you spend time–which I had done for a couple of different companies previously–visiting the customers and seeing the data centers, what strikes you is how really inefficient and expensive that model is and really has not fundamentally changed in a long time. When I started reading in 2007 and then early 2008 about this idea of cloud computing and it started to show up a little in the press and you were hearing about how Amazon the retailer is doing all these interesting things in the technology world, it kind of sends up a little thought in your head like “Oh, that’s interesting. That sounds really cool.”

Around that time, I got introduced and connected to my co-founder, John Considine who actually completely and independently –we had never met before — was thinking those exact same thoughts. He had sat down and drawn himself a picture that sort of showed enterprise data center, cloud. What’s going to hold these things together?

Andrew: Why hold it together? Why not say “Enterprise data center crossed out, cloud,” or arrow to cloud because the future would be the cloud? You intentionally didn’t do that. Why not? Why didn’t you and why didn’t he do it?

Ellen: I think the knowledge of how enterprise customers work and how IT organizations work made it very clear that this was at least going to be a 10-year and possibly a more than 10-year journey. That was 2008 and here we are in 2016. I still have meetings every day with companies that are saying “We’re ready to go to the cloud. We’re starting to think about how we’re going to have this cloud model that mixes my traditional stuff, which I’ve got a ton of. It could be millions to billions of dollars of any investment and stuff that I’ve already got. I’m trying to shrink that and then figure out how to put in new things and then move some things out too with this model that I like. How do I make that work?”

Andrew: I see. Even if it eventually will all be the cloud, it’s such a slow transition period that it definitely doesn’t make sense to cross it out and it doesn’t make sense to even put an arrow from one to the other because it’s such a long process. Why think about it as “We’re going to help them move over time?” No, we’re going to accept that their world is involved in real computers sitting in some storage facility somewhere, but also allow them to have this taste of the future for new projects and for an extension of their current work.

Ellen: If you’re a small company or if you’re a startup that was just starting in 2008, you just didn’t build a data center anymore or use a data center, whereas in the past, a lot of your budget from the funds that you raised would have gone to putting development gear, production gear or whatever it was into a physical data center. You just didn’t do that anymore, so you never started, but all of the companies that for us were going to be our customers have decade’s worth of stuff that they’ve been building. They could have hundreds or thousands of applications that are running today with real customers and real employees using them and there isn’t really a way to say “Okay, that’s all gone. Bye. Sorry, just kidding.”

Also, the cloud was kind of the Wild West. Goodness, back in 2008 people thought, “Could it even work? Could it work at scale? Could it work globally?” Here we are now many years later and there’s a lot more confidence in it and there’s a better understanding of what it’s good for and what it’s not good for which was totally missing at that time.

Andrew: John was Director of the Platform Products Group over at Sun Microsystems. I’m wondering how you guys hooked up in a way that allowed you to become co-founders.

Ellen: He had already left that job when he started working on this. He took some time and kind of went off and did some thinking and invention.

Andrew: I see that. We’re talking about maybe two or three years that he was taking off in between those two businesses. Is that right?

Ellen: No. He had about a year. He was maybe less than a year into thinking about it when I met him and what he had been doing was sitting with one of the local venture capital firms here in Boston that I was also connected to from the previous company I had been at, which was Netezza, so we both had connections into that firm and to one of the venture partners there. That person actually was the reason that we met, because I said, “I’m really interested in this idea,” and he said “Oh, well I have this guy over here who’s actually working on that, so why don’t I put you two in a room and see what you can come up with?” That was good. I was really lucky that that happened.

Andrew: You told our producer that you and John were kicking around a bunch of ideas before you figured out this one idea. Is that right?

Ellen: Actually, that was for ClearSky. That was for my co-founder . . .

Andrew: Oh, I see. With this idea with CloudSwitch, you just knew “This is it.”

Ellen: That was it. Honestly, I have to say I’m glad you asked, because that’s really unusual. What’s more usual is what happened for me here. This is the third company I’ve started myself with technical co-founders and you’d think that I’ve got it nailed, but it’s totally not true. It’s absolutely not true, because when you start from scratch on something, you have an idea, you think it could be interesting, but there’s unbelievable amount of work you have to do once you’ve decided that it’s strong enough that you want to invest time in it. Halfway through that process you could just decide, “You know what? It just isn’t good enough,” or “I have to change it dramatically,” or “I have to just throw it in the garbage and start again.”

What was funny and unusual about CloudSwitch was John had this picture that he had drawn on the board and it was an idea that made total sense. He and I sat down and started talking about it and it was the exact same idea all the way through to when it got launched. Sometimes that happens and I think sometimes I’ll seem to get very excited about the idea. There’s nothing to compare to letting a little reality wind blow on it to see if it’s going to fly or not.

Andrew: Ellen, did you validate this at all by talking to customers and seeing if this idea that you’d sketched out . . . if your understanding of their needs was actually something that they were willing to pay for?

Ellen: You know, it’s funny because we did a ton of that right from the beginning. Then when we were in the process of getting funding, we ended up [inaudible 00:12:43] for funding. We had these early adopters who were willing to give us their thoughts and their feedback on it and as it moved into the next stage of having developers that we brought on board to build it, we started testing it as it got to a point where it was possible to show it to people and see what their reaction was.

What’s really interesting about it is I always think that CloudSwitch was the really unusual situation for me because here’s how the conversation would go like. We’d go out to the CIO of [inaudible 00:13:14] and we’d say “Hey, there’s this thing called the cloud. Have you heard of it?” The person would say “Yeah, I read an article in Business Week about it. It’s actually interesting.” Then we’d say “Oh, it’s going to completely change everything. We’re telling you, everything is going to change. Here’s all the great things about it and you’re probably going to want to use it. When you do, here are all the things that are going to be problems.” Then we’d list a bunch of issues around networking, security and how you’re going to migrate big amounts of data around it and they said “Well that makes sense.”

Then we said, Okay, so we can fix all those problems. We’re like the Easy Buttons to cloud.” They said, “That sounds awesome. We love that. We can’t get enough of that. Come back and tell my entire company at a lunch and learn about how awesome this is going to be.” What ended up happening and I guess maybe the moral of the story for me was we got so much excitement and so much enthusiasm from those early customer conversations, the early data customers and then from our investors and all that kind of thing and I think what we managed to not hold on to–which is one of the most important things an entrepreneur can do–is excitement does not translate into immediate urgent need for a product.

here’s no question that we were so ahead of where the market was and so ahead of what the customers were doing that what they really wanted to do was to work with us to learn about the cloud and they were willing to pay us to learn what the cloud was. It was a little bit like what I call a false positive in terms of what we got out of it which was there is going to be a need, but it’s not a today need; it’s a tomorrow need.

Andrew: When you say they were willing to pay you to learn from you, did they actually pay for that?

Ellen: Sure.

Andrew: They did?

Ellen: As pilots; like they would deploy as pilots with us in order to actually run workloads in the cloud because they felt that the model we had let them solve a bunch of problems that would have made it impossible for them to do that.

Andrew: But they weren’t paying you because they wanted you to solve the problem; they were paying you just to see what is this like? It’s kind of like me paying for some Fas app just to see what it’s like on the inside of it.

Ellen: Exactly.

Andrew: I see.

Ellen: It gets them oriented to it. We’ve had almost 10 years now of companies trying to figure out what the cloud means to their business and how they can use it for improving agility, lowering costs, getting their developer teams more productive and stuff like that so it’s very compelling. If you talk to most of the CIOs at any major enterprise, they all have a cloud initiative, but it’s taken a bunch of years for them to figure out what is that initiative and what’s the first thing they’re going to do versus the fifth thing they’re going to do? We were back at the beginning of that whole process, helping them start to figure that out.

Andrew: That makes sense. Actually, just to put it in perspective, Amazon Web Services didn’t launch until 2006, so it was just a couple years before you and even back then even startups were wondering “Does this make sense for us, or is it just a quick, easy solution until we find something that does make sense?”

Ellen: What had happened in the two years from when Amazon got going to when we got started and we didn’t actually launch product initially in the market until 2010 so there was another couple of years after that that we were building, developing and all that stuff. What was happening in all those years was that the developers in those enterprises were quietly taking their personal credit cards, going onto Amazon, signing on for an Amazon Web Services account and just doing what they needed to do because they were so frustrated by the fact that they felt they weren’t getting what they needed from a more traditional IT model where it could take them four months to get access to stuff that they needed to build their application.

Andrew: When you say they were using their own credit cards, were they actually paying for this just to learn and play around with it or were they paying for something that eventually was deployed?

Ellen: You know the way these things happen. It started off that they just were playing with it and then they said, “Boy this stuff’s good. We could really use this. Hey, I could have like 100 compute instances. Oh my god; I never get that at work. They would never give that give that to me. It would take me six years to get that.” What started to happen is people were referring to it as this rogue IT or shadow IT. That was the kind of stuff that was happening.

Suddenly these types of spending started to accumulate in a way that became a little bit more noticeable and at the time that we got involved, IT was starting to say “Wait a second. Who even knows what’s being put out in the cloud? We’ve some guys that are just sticking stuff out there. Maybe it’s Deana that has compliance issues on it. Maybe it’s core IT for the company,” so all of a sudden issues of control, security, monitoring and all that kind of stuff became much more important which was why at that time they were interested in talking to us. “How are we going to take this really powerful thing that’s out there and start to bring it back into the company so that we can use it in a way that doesn’t make things really . . .?” Honestly, you have to be careful. You can’t just stick all your stuff out into the cloud and not know what’s out there. There were a lot of enterprises that would really seriously cause trouble.

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Hey Ellen, I’m wondering how you got so many conversations with all these people in IT who are busy people who don’t want to share what’s going on internally. What happened that allowed you to have so many conversations?

Ellen: Some of the relationships were ones that I had had previously from past companies like Netezza and even some before that where there’s a . . . I don’t know how to describe it. It’s not a demographic but I sometimes call it a psychographic for a person who is more of an early adopter of technology. You can always tell because they’re the people who actually are wandering around some of the big technology shows visiting the startups and they’re the ones who if you link into them and say “Hey, I’ve got this really crazy idea about X and Y, would you be willing to take 10 minutes and talk to me?” they will actually respond.

There’s a very helpful and I think almost credible thing that happens sometimes where some of those types of people will help you and now I’ve had the same people help me through two or three companies where I go back to them and I say “This is my new thing. This is what I’m working on. Would you just take a look? You don’t have to do anything. Just listen and then tell me what you think about it.” That’s a starter thing and that gets a few conversations but of course that’s not enough so a lot of the work that you do is you’re just very intensively working your personal network, your friends’ personal networks and your investors’ personal networks to try to get access to people who would be interested in at least hearing about the idea and why you’re developing it.

It’s a different thing than asking them to buy from you because really all you’re asking them for is to give their expert opinion on something and that’s a much easier conversation to have. I’ll just say “I’ll fly out to wherever you are. I’ll show up in your office with coffee. I’ll do whatever it is. Give me a short period of time and I can just describe what this thing is about and all I need you to do is tell me if you think it’s a terrible idea.”

Andrew: Why is flying out so important? Why not say “I’ll call you at whatever time works for you?” What do you get out of seeing them in person?

Ellen: You do mostly on the phone, that is true, but I’ve definitely had a situation where if it’s people that you have worked with in the past and you know that their input is incredibly valuable input . . . like one of the things that entrepreneurs have to do early on is try to find what the minimum viable product is going to be. So if you have an idea that seems like “Hey this sounds good and people seem interested in the general idea,” it very quickly gets into the “Okay, but it could be this big or it could be this big. How do I define it in a way that I could actually build it in some reasonable amount of time with a small number of people?”

In order to do that, you actually sometimes need people who are willing to really dig in with you and we’ve had people who gave us two hours, where they really will sit down and go through with you and say “Like this or like this?” What can you do for them except buy them lunch? They’re not doing it for the money; they’re doing it because they want to help entrepreneurs, so that’s really amazing.

Andrew: Were they also curious to see what you knew about the cloud because you knew about this issue that they were going to jump into in the future?

Ellen: Yeah. In the case of CloudSwitch, that was definitely an easy calling card because if you said “We’re building something that’s really a new thing that’s going to enable people to use the cloud,” almost anybody was willing to take our call. It just made it very, very easy in terms of being able to sort of call someone up and say “Could I pick your brain on this?” They would say “Oh, come on in” and to my earlier comment “I’m bringing five of my employees with me for the call because they’re all interested too.” It’s a double-edged sword in terms of how much information you actually want to get.

Andrew: Was there something that you learned back in the CloudSwitch conversations that helped change this idea that you and John already had?

Ellen: What we didn’t realize at the time was that one of the things that had the most value to the customers was actually the networking. I don’t think when we started we had really thought about it as comprehensively as we ended up doing in what we built, because if you think about it, there’s the physical data center and there’s the infrastructure that the cloud runs in and all of the things that are true about configuration, inversions and set up and the way all the different pieces of an enterprise stack it or set up compared to what the cloud services are doing. It’s totally different.

In order to mask that and make it easy so that the customer didn’t have to care about all those things, one of the hardest things to do was to actually make it possible for the things in the cloud to reach back into the enterprise and access some of the security, management and monitoring tools that were already in place. That turned out to be a killer issue for the customers because they wanted to be able to have the view that showed all of the stuff that they were doing both in the data center and in the cloud and manage and run them through one set of tools and that’s an issue that still persists to this day. What’s the unifying thing that holds it together? A lot of the work that we did was about how to make the plumbing work so that could be possible.

Andrew: I want to move on to sales, but I’ve got one last area to talk about here with these conversations. Did you have a framework for having the conversations to make sure that you were actually getting some value out of it, or were you just going in and chatting and letting the conversation go where it would?

Ellen: Well it depends when in the life cycle of the company. The early conversations were much more sort of vision, direction, “How do you think this is going to evolve and what’s your perspective on things that you would consider . . .?”

Andrew: Was that them asking you this or you asking them how do you think?

Ellen: It was us asking them. They were very open-ended questions in the early, early stages.

Andrew: What’s an open-ended question that you used to ask?

Ellen: I used to say “What, if anything, do you imagine that you would be willing to put in the cloud?”

Andrew: I see.

Ellen: “What’s a workload that you would be willing to consider putting in the cloud?” What people started to tell us back then was “Our development and test environment. That’s something that we’d be willing to. It was the thing that we put in our VMware when that first came out. Now it can be the first thing to go out to the cloud because it’s low risk. It needs a lot of resources, but it’s not production stuff.” That was something that we learned early on.

Then as you go forward, you’re starting to ask very, very different questions that fit more of a product development framework, so you’re asking questions about prioritization. You’re digging in really deep about “How does the security model need to work?” and just focusing on one particular aspect of the product. This is true of every company I’ve ever worked on. Sometimes there’s a moment where you realize that networking turns out to be a really huge thing. You haven’t really done a comprehensive view of it and you need to take a step back and [inaudible 00:26:59] just on that one area and that’s when those customers are great.

Andrew: You told Jeremy about this one Power Point slide that you had and you sold the idea before creating it. You sold the idea using a Power Point slide before you actually created the product. Is that right?

Ellen: Well that was how we raised our venture funding.

Andrew: I see.

Ellen: That wouldn’t have worked for selling to customers. They actually needed to see a lot more details than that.

Andrew: Did they want to see software already built in the enterprise?

Ellen: For the initial sale, yeah. We showed the demo for sure. IT leadership in enterprise organizations have vendors calling on them all day long. It’s very frustrating for them. Everything is exciting, everything is new and everything is the greatest thing you’ve ever seen in your whole life so they’ve become, I think rightfully, a little cynical. “I don’t even want to talk to you unless you can show me something real. That’s if you can show me some other customers who have deployed it. That’s always better, but if you’re going to ask me to be one of those first customers, you’re going to have to prove it to me.” When we raised our initial funding, we didn’t have anything. We just had that one Power Point slide.

Andrew: How did you get your first customer then?

Ellen: It was a lot of very intensive meetings and as I mentioned, doing these proof-of-concept kinds of demos and just slowly kind of selling the customers. There was always someone who’s your champion and the other ones kind of pull it forward, so in our case it was whoever was taking ownership of whatever that cloud initiative was for the organization. There was always one guy who just loved the cloud and wanted to really figure out how to get in and we’d help answer a bunch of the problems and questions that that person was getting asked so it was like an easier way in for us.

Andrew: And that became your first customer and you incubated the whole thing in a venture guy’s office.

Ellen: That’s right. We did that for when John and I were just sitting together and building the idea and then early on when we had the first five employees, we stayed there and then they kicked us out.

Andrew: Whose office was this? Was this Matrix?

Ellen: Yeah.

Andrew: It was.

Ellen: Yeah, it was Scott-Matrix. They had a really nice entrepreneur space, it was free and we were not in a rush to leave. Eventually they were like “Goodbye. Leave the nest. Time to build your own [inaudible 00:29:19]” but it’s very helpful at the beginning because it just gives you a lot of access to stuff that you wouldn’t be able to do on your own, like printers, snacks, kitchen and that was good.

Andrew: What did the first version look like?

Ellen: It was very rough. The user interface was challenging. We actually had to rip it apart and rebuild it. If you’re going to build something whose main purpose in life is to dissemble for your customers, your user interface has got to be simple for customers. You know it, but when you’re building it, you’re so focused sometimes on just the raw functionality of making it work that sometimes you’re not making . . . so this company we started working on user interface–my co-founder is really passionate about this–right from the beginning so a lot of the design that we did as things were getting built we were thinking about how they were going to get integrated in all the way up the third management layer. Let’s say our early demos required a lot of hand holding and praying.

Andrew: I saw one of the later versions and I somehow found a screencast of somebody using it. It basically looks like a Microsoft Windows desktop app. It’s kind of like something that was made for Windows ’98.

Ellen: Oh, well that’s not a compliment I guess. It was built around a model that should be familiar to our users. At this point we’d probably not use that model anymore.

Andrew: I’m sorry. I think I said Windows ’98 and I forget that ’98 is from 1998. I mean like it would be not the latest version; not the Windows 7 design.

Ellen: It stabbed me in the heart when you said that. I was still agreeing with what your point was which is there’s always a challenge with new technology that it has to relate for an enterprise customer to what their users are comfortable and familiar doing. You can make it so much better and so much less miserable and complex and showing them all sorts of knobs that they can’t even use anyway. You can clear a lot of that mess out of the way, but it has to still relate.

You can see with things that are evolving there is now a look that is much more webby than it used to be for anything that you would design and certainly anything that is in the cloud to [inaudible 00:31:34] to it but that wasn’t quite true back then because that wasn’t a paradigm that people were comfortable with yet.

Andrew: I’m still uncomfortable now when I go to websites that don’t have that webby, sassy feel to them. Like Citi Bank’s website is always so jarring because it is stuck back in ’98. Meanwhile, I have an account with Chase Bank and they just feel so modern and so much like every other app I have on my desk. It’s a huge change. People downloaded it, but they didn’t actually do anything with it. Why not?

Ellen: We had a lot of that kind of early excitement that I was describing where people were saying “This is the coolest thing ever. Let’s just try it and let’s kind of have a first look at it.” Then what ended up happening I think is that they walked into the conversations that they were having internally with security, networking and with people who were kind of the more traditional infrastructure teams and they ended up in what turned out to be I think in retrospect maybe a four or five-year conversation.

It helped spur a conversation that needed to be had within the companies, but it led to a much more complex set of choices that a lot of these companies have been figuring out, which is “How do we talk about our different types of data? Which types are truly serious compliance things versus things that are sensitive data versus things that are pretty much public data that can go out the door?” Then there were all these conversations about “Well, if we start allowing some of these things to go to the cloud and we’re putting new things in the cloud, how are we going to monitor them and keep track of them? What if we suddenly get a bill for $5 million that was an unexpected bill because someone turned on a bunch of instances in the cloud, forgot to turn them off and it ran for a year? What would happen then?”

I think that a lot of what we saw was people absorbed a lot of information, they went out and had a lot of good discussions and then they emerged a couple years later with what they wanted to do for real. For us that was frustrating because we were saying, “We’re here and ready to go. Where are you?” A lot of it was that they would finish the pilot, declare it a success and then toss. I think that was a lot of what happened to us in the late 2010 timeframe and that was when we started having some conversations with Verizon.

We had already been working at a very large customer site with a company called Terremark so we were in at a big bank as an early customer with Terremark and unbeknownst to us, Terremark was in the process of getting bought by Verizon. All of a sudden that sort of happened and then some of the key people at Verizon who did that acquisition called us up and said “We want you next. Can we have a conversation with you about that?” We had already met them more casually, but we hadn’t had that kind of a more serious conversation because as far as we knew, we were just trying to win this big deal and partner with them.

Andrew: What did Terremark do?

Ellen: Terremark was a very large colocation, managed hosting and cloud company and they were a very early adopter of cloud, so they offered what they were calling their enterprise cloud which empowers the institute Amazon, was VMware based, and it had all sorts of more enterprise controls. It was built on a stack that looked friendlier to the enterprise IT guy and they had a lot of success with it. It was growing very, very quickly, getting a lot of traction and really scaling globally. It had a large federal business, a large international business and so they were kind of scaling that out and then they had an offer to get bought for about $1.8 billion or something by Verizon so they took it and they ended up [inaudible 00:35:08].

Andrew: It was $1.4 billion. Just to prepare for this interview I looked up Terremark and the story is so fascinating. It was started by a guy named Manny Medina who came to the US from Cuba at 13 years old. He somehow got into real estate . . . I don’t know how. As he was getting into real estate, he noticed that a bunch of his buildings were being leased for computer data centers so he got into computer data centers. After he had computer data centers, he realized that people were going to the cloud so then he started going to them and he finally sold his company for $1.4 billion. I don’t know anything about him beyond what I read in preparation for this, but that is a fascinating story for a guy who just comes into the US at such an early age.

Ellen: He is amazing. I had an opportunity to spend some time with him and get to know him both before and after the acquisition and I have to say he is an amazing American story. He kind of came here with nothing, created a whole life and business for himself and saw a couple of ways of things in a row, so you’re right, he started building these high-availability data centers and did a lot of business I think for hospitals and people that needed that kind of high availability. Then he jumped on the virtualization band wagon. I don’t know how he knew. He wasn’t really a technologist, but he just knew that virtualization was going to be huge and then he knew that cloud was going to be huge.

Then he built some really great stuff and now he’s funding other companies. He and his early team have gone off to the venture capital side of the table but he’s still involved in the enterprise space.

Andrew: That’s such an impressive story. If Verizon is buying his company, why did they immediately want to come and buy you next? What is it about you that they needed?

Ellen: I think they felt that Terremark had a really great enterprise cloud service that would allow them to kind of quickly move into that area without having to start from scratch and I think that they felt that what we had to offer was the fact that we were this . . . as I mentioned, we’re kind of the Easy Button that would make it possible for customers to move things out to the cloud without having to build a whole bunch of things on the customer side. In their minds, they saw that as kind of a package that they could offer all together that would help them grow quickly and be able to get the enterprise customers to move faster into the cloud.

Andrew: I think you just raised money a little before the sale, right? What happened there?

Ellen: We raised two rounds and the second round was I want to say in 2009. We raised our initial round and then we had a pre-emptive Series E that happened very quickly and we had raised a whole bunch of money. We hadn’t spent all of it. We were at that moment where “Do we raise more money to be able to start to really scale out or do we kind of hunker down and see how this market is going to roll because it’s obvious that it’s going to take a while for real adoption to happen?”

It was right around that time that we started having these conversations. We kind of all sat in a room and looked at each other and we said, “Look, it is going to take maybe five years for this market to truly emerge and the amount of capital we would have to raise and the amount of building of market presence on our own is going to be really tough for a tiny little company to do. Here’s an opportunity to jump on a train that’s ready to leave the station where they have brand and reach and stuff that we could never get on our own.” I think honestly if we hadn’t been engaged that actively with Terremark, I don’t think this would have happened because I don’t know if Verizon would have necessarily known about us, but because we were already so deeply engaged there and we already had done all the integration work, it made it easier for that to become “Yeah, let’s take what we’ve built and move it into something that hopefully will scale.”

Andrew: Did you sell for more than $40 million?

Ellen: What I’ll say–we don’t talk about the price — is that it was a very happy deal. Everybody involved made money and felt good about it and yes, it was considerably more than that.

Andrew: Okay, the investors then got the return that they were looking for.

Ellen: Yeah. I think everybody was really happy about it. I think as an entrepreneur, do I wish that I had been in something that we could have taken forward to the next step and really built a huge and scalable company of our own? Of course I wish that. That’s what you really would want and that’s the whole goal of it, but when you are making a decision about what’s the right thing to do, you have to look at where the market and where your company is and you have to make the right decision at that time.

Andrew: There’s something that happened in your past that maybe informed this decision. Let me ask about that in a moment.

First, I should tell people that this interview is also sponsored by HostGator. I’m actually going to pause here for a moment and let my editor, Joe, put into this interview an interview that I did with a HostGator customer, because I think it’s a really interesting story. We’ll play that and I’ll come right back.

Andrew: So you do both blogging and podcasting.

Customer: Yeah.

Andrew: What part of it do you like best so far?

Customer: I’m a former corporate recruiter and to me interviewing is the funnest job in the universe.

Andrew: What was it like to get started with HostGator?

Customer: Oh my gosh, I am in love with HostGator, I really am. I built my own site and went with another company for convenience sake really. I didn’t know about hosting. How did I know how to pick? I quickly became frustrated with that provider and what got me frustrated was the poor quality of support and supporting documentation and information. The final straw was I contacted them for information. It was bad and the site went down. I found HostGator and they made the process of moving so simple for me.

I was then working as a virtual marketing manager for a very popular restaurant back in South Jersey, where I’m from and at 4:00 on a Saturday afternoon, the chef/owner called me in a panic. I had set him up with a very basic Word Press website so he could only make small changes and somehow the site was down. I’ve got to call somebody so I got HostGator on the phone. The tech person stayed on the line with me for six straight hours.

Andrew: Whoa . . . at HostGator?

Customer: Right.

Andrew: It’s under $10 a month and they’re spending six hours on the phone with you. My goal for this call was to record a little mini interview with you to use inside my interviews, but are you okay with me using this within the interview?

Customer: Whatever works for you. I’m here to help you.

Andrew: All right. In that case I’ll tell people that they can go check out your website. The URL is www.LetsTalkTechShow.com. It’s hosted on HostGator and anyone out there who wants the same level of support, the same up time, the same good people that work at HostGator and the low prices can go to HostGator.com/Mixergy. When you throw that /Mixergy at the end you get an extra 30% off. Go to HostGator.com/Mixergy.

And we’re back. I’m wondering about your time at Manna, the company you were with back at the height of the internet boom that grew and then at the end of the boom when the bus came, I think it went away, right?

Ellen: Oh my goodness. It was classic dot com moment. What do I say? I always say I was glad I did it but it was a crazy time. We started it in ’98. It was a group of people including a bunch of Israeli co-founders and then brought the company here to Boston. That I have to say sort of start to finish was right in the midst of the craziest height of the dot com time and right as it burst, so good timing turns out to be quite a factor in everything.

Andrew: What happened at the height there? Internally what was it like to be at a company at the height of the frenzy?

Ellen: You know it was so crazy that really the truth is that the last couple of years have been a little bit like that. We’re kind of in the middle of what seems to be a correction of what was also a little bit of a crazy bubble, but not nearly as insane as what that was then.

Andrew: Do you mean 2015 and 2016?

Ellen: Yeah. It has some shades of the same thing. The way that you know that it’s crazy is when people are just talking about things that truly do not matter. They’re talking about parties that are being thrown and perks that are being offered to try to lure employees to come and join, how fast they’re going to be taking office space, how crazy their rents are and stuff like that. Those are often signs of a bubble and a lot of the things that were happening back when we were getting Manna started was just that the pace and the frenzy of it were so intense that there was almost like a “Quick, you have to build it because you need to go public next year. You just started, but you’re going to go public next year.”

I don’t know. Was it a good time to learn about how to start a company? I don’t know. All I know is it made me a little tougher since then in terms of how I think about spending money and hiring carefully. The down side of that stuff is not pleasant and you want to be really thoughtful about what you do so that you’ve given yourself enough time and [inaudible 00:44:245]. If anything, what I learned during those years is don’t run out of cash. It’s really key and think hard about whether you’re reacting to real signs of what you’re seeing in your market versus what your friends are telling you at a party. Those are kind of key things.

Andrew: I remember interviewing Jason Calacanis. Some people said he sold his second company, WeblogsInc, a little too soon and he said, “Look, I was there at the dot com bust. I saw how easily this stuff can go away. I’m not about to just keep rolling the dice here like a gambler at 4:00 a.m. in the morning.” Was it a little bit for you like that here with CloudSwitch, where you said “I’ve been there where it was the hype. If this is sensible, I’m going to allow myself to be sensible instead of getting carried away with where the market says we could go?”

Ellen: Yeah. I think that’s in the back of my mind, but I also think that you get more years under your belt as well where you get to see a little bit more of how things go. The reality of what it takes to really sell a product to a meaningful set of customers and make them happy with the product is really a very intense and complex thing to do and it takes a lot of time. Because I also do that, I think I was a little bit more saying “Look, if we can’t show that the customers are ready to do those things no matter how much they love this product and how excited they are, you have to listen to that.”

You have to listen to the market feedback because it’s at your own risk. If you just say “Hey, they love it. They told us it was great. They had a very successful pilot,” it doesn’t mean enough.

Andrew: ClearSky Data . . . you said the idea for that came from some brainstorming or some ideation. What was your process for coming up with the idea?

Ellen: Well I actually was introduced to my co-founder, Lazarus Vekiarides, back in 2013 and we started working on a few different ideas together. There was an idea that I had that was I was very interested in and was really pursuing pretty actively and trying to figure out if I could find someone to work with me on it. He and I started thinking about it and did really a lot of work; many months of research, talking to customers and at the end of that time we said to each other, “You know this has been interesting. We got a lot of very positive, enthusiastic reactions, but it’s not enough.”

Andrew: Why isn’t enthusiasm enough?

Ellen: Because when you really push the customer and don’t just let them tell you that it’s cool, it’s a fantastic idea, they think you’re terrific and all these things . . . because they’re trying to be helpful. Their goal is to be supportive of you because they want to help you get your business started, but when you say to them, “But truly, what is the thing that if you were using this you wouldn’t do anymore and how would it really change in terms of some of the things you have to buy and the money you have to spend today? How would it really change those things?” If you couldn’t get to an answer from a customer or several customers in a row that could give you a really clear answer to that question, you have a problem.

Andrew: I see.

Ellen: If I learned anything from my last company, that was definitely what it was. We had this idea and we killed it. Truly it just stopped and then we took some time off and regrouped a little. Then Laz came up with a different idea. He took some of the pieces from the first idea and then applied it in a completely different way to use storage and that’s how we got here.

Andrew: Then you started talking to customers and seeing that. What was it like when you talked to a customer and you finally hit the mark with them? What did you get back from them when you finally hit the mark and they told you “This is important; we’ve got this?”

Ellen: They said, “If you had this we would buy it.”

Andrew: That was the critical part.

Ellen: Also, when you push them and say “Okay, that’s great that you would be willing to buy it, but what would it replace? What would be the thing that you would stop doing?” and they were able to tell us more concretely some of the things that they do today that are truly miserable, horrible, expensive, time-consuming things that they really don’t like to do and they could tell you about that, like “Do you know what I do all day? I do this. I hate that.”

Andrew: What’s one thing that they do that they hate that you could help relieve that pain?

Ellen: They have to buy storage arrays, put them in a data center, figure out how to optimize and cable and hook up all that stuff. Then they have to decide which workloads go on which type of storage, because they have the really expensive storage, the pretty expensive storage, and then the cheap storage where they put the stuff they don’t care about. They have to decide what goes where and then that keeps changing and they don’t know what to do with it. Then, by the way, they have to back it up and they have to figure out what to do if there’s a disaster. How are they going to handle all that? That is just thankless, miserable work and it’s millions of dollars; a big part of the budget.

For us to come in and say to them, “We’re going to offer you a managed service, you’re just going to plug into it and we’re going to take it from there and we’re just providing you guarantees on service levels,” the detail of course matters, but with the basic idea they’re like “Great, I’m in. I want to go to the cloud. How are you going to help me go to the cloud where you’re going to help me stop having to file this infrastructure while I’m trying to go to the cloud which is what I don’t want to do anymore.”

Andrew: I see and they’re suffering through this. It’s just part of the job so maybe they accept it and in you come and you say “Here’s a better way where you don’t have to suffer through this. Do you want it?” and they say “When can I buy?” and that’s how you realize “I’ve got their product right here to jump into.”

Ellen: We felt a very dramatic difference in terms of the kinds of conversations we were able to have. They were not theoretical. They were concrete. They were like, “These workloads that are running on this storage today . . .. I do this every 18 months and then I have to refresh it all and then the stuff goes into life and then I’ve got to pull it out and put in new things.” When you hear people talking about it and getting really upset, you know that’s the moment to come in and try something different.

Andrew: This company has only been around for a couple of years. Do you release your revenues?

Ellen: Well we just started selling at the beginning of this year.

Andrew: Oh really? So we’re talking about only two months of sales.

Ellen: Exactly. There’s not much to release yet. I hope I’ll be able to share more with you as we get later in the year, but we’re just at the point where we’ve released the product. It’s generally available and we’re able to provide the service now in several cities. Our model is delivered to customers that are within a radius of us in certain cities, so we’re kind of building those things out and now we actually have our gold sales and marketing team. We’ve kind of put our management team together so we’re ready to go.

Andrew: I’m looking at your entry on CrunchBase and I see Paula Long, who I interviewed. She’s your board member is why I see her on there. Is she the one who’s been your mentor for a long time or is it one of the other people on this page? Who’s been the mentor who is now on your Board of Advisors?

Ellen: We have two mentors. We have the venture firms who are involved, are really a tremendous help and really do a lot of heavy lifting to help us with recruiting, helping us find customers and stuff, but we also have two independents who are just friends and mentors to myself . . ..

Andrew: Paula Long and David Orfao?

Ellen: Actually, the other person I was referring to is Jit Saxena who was the founder and CEO at Netezza. He was my boss and Paula was my co-founder’s boss. David Orfao is our investor from General Catalyst so really I think it’s a strong and cohesive group of people who work with us.

The people who are your independent board members are themselves entrepreneurs so there’s nothing like when Paula or Jit sort of quietly have a side conference with you when you’re running into some really challenging issues and they’ll tell it like it is. They’ll give true tough love or whatever’s needed. “You’ve got to fix that. This is what you need to do” or “You’re ignoring that; you need to go pay attention to that.” Honestly, I don’t know how to do it without that. You need those kinds of people around the table because they’ve lived every second of what you’re going through. They’re there to support you, but they’re also there to really tell it like they see it.

Andrew: This is a lot of work; I mean years and years of work. You finally get some time off and you go and spend a week in a hotel and then you’re right back in it again. What is the best part of all this? What’s the part that makes it all worth the work?

Ellen: For me, I feel like this is what I love to do. Actually, after I left Verizon I took some time off before I started working on my next [inaudible 00:52:45]. The truth about it is that I did some really fun things that I really enjoyed. I did some more social entrepreneurship, working with some of the volunteer organizations here in Boston that I really admire and I felt like I had some really good time that I was able to just kind of go think about other things. Then when I stopped and I said to myself “Okay, but do I want to do that full time or do I want to do something completely different full time?” I thought, “Well no, I miss it. I miss the startup life. I miss the craziness of it.”

I think what I missed the most is the creativity of it if I’m not in it and the idea of being around people who like to invent things and solve problems and stuff like that is just a very exciting and very stimulating way to be.

Andrew: I can see that. I’m so glad to have you on here to talk about how you did it. It’s an exciting journey and it’s continuing. CloudSwitch is over. Congratulations on that, at least for you. ClearSky is just getting started and I hope we’ll get to hear more about it as you continue.

Thank you for doing this and to anyone out there who’s listening, thank you all for being a part of Mixergy. The two sponsors I talked about are HostGator.com/Mixergy and Toptal.com/Mixergy. Your website is actually ClearSkyData.com, right?

Ellen: That’s right, yes.

Andrew: Cool. Great. Thanks for being here. Thank you all for being a part of Mixergy. Bye everyone.

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