Apr 21 2014, 9:32am CDT | by Forbes
Many start-ups are created by entrepreneurs trying to solve a personal pain point for their business—or in this case the entrepreneur’s daughter. Carbonite is a popular Cloud-based file storage service designed for consumers and small business created by serial entrepreneur David Friend.
“My daughter called up from college in New York to tell me that the hard drive in her laptop had crashed. She had a term paper due on Friday that she’d been working on for about two months and was all in tears. So I raced down to New York. We took the hard drive out and brought it over to one of these companies that claims they can recover data from dead hard drives. They charged me 1,300 bucks and still couldn’t get the term paper back. Two days earlier my business partner, Jeff Flowers’ wife’s laptop was stolen and along with it two years’ worth of baby picture files she never bothered to back up. Those two events coming within a few days of each other made us wonder if other people have these problems, because both Jeff’s wife and my daughter had an external hard drive that they were supposed to use for backing up, but none of them ever plugged it in and did anything with it,” says Carbonite co-founder and CEO David Friend.
It dawned on David and Jeff that people are always connected to the internet—why not find a way to automatically back up files over the internet to the cloud? They thought, if they could make it simple enough and cheap enough, everyone would be able to it. Thus Carbonite was born as an idea. The key to David’s success lies in his own experience as a small business owner. Friend has been a successful entrepreneur for more than 40 years, acting as co-founder for six technology companies in the Boston area. His most successful endeavor to date, Carbonite Inc., was formed in 2005 in his dining room, and grew in less than six years to a publicly traded company. The Boston-based Carbonite now has 425 employees with revenues of $107 million last year (up 28% Y-O-Y), and is the fourth joint venture between David Friend and Jeff Flowers, both well-known Boston-based entrepreneurs. Prior to Carbonite, Dave and Jeff founded Pilot Software, FaxNet Corporation and Sonexis Incorporated.
“We thought that if we could reduce the issue of installing and using a backup solution that only involves an e-mail address and a password, then we would really have something. In order to do that, we would have to offer unlimited backup for a flat price, because what was out in the market at that time were some early cloud backup companies and they sold their storage by the gigabyte. Nobody knew how much storage file space they needed. We’ll offer to backup everything, and yes, we’ll lose money on the one or two percent of the customers with giant file size requirements. But if we just back up everything and don’t miss anything, then it will be a really good service because people always forget to back certain things up, even when they’re using external hard drives,” says Friend.
David’s partner Jeff came up with the technology solution to store enormous amounts of data in a way that was much cheaper than what had been on the market at the time. “As Jeff put it at the time, a database can either be slow and cheap or fast and expensive. You can’t be both. We’re a poster child for slow and cheap. Jeff came up with this new architecture that makes much more efficient use of disk space and compression techniques, requiring a lower amount of compute overhead for the amount of storage. It gave us a real, sustainable cost advantage in the marketplace. And that was how we got started,” continues Fried.
Once the technology issues were solved, the company’s next challenge was creating a brand that people would trust with their most precious documents. Marketing would need to be the driving force to grow the company. That’s when the company came up with the idea of using endorsements from talk radio show hosts. “That was another stroke of good luck. We found out that people who listen to talk radio, especially conservative talk radio, really trust the hosts,” says Friend. The company then went out and signed up every national talk radio show host from Howard Stern to Rachel Maddow to Glenn Beck to Rush Limbaugh to pitch for Carbonite.
“It was a real stroke of brilliance on the part of our marketing VP. Every year we doubled the ad spend which doubled the revenue. That’s how we got to $100 million in sales in just four or five years,” says Friend. The company then began examining its customer base a little more closely and discovered that almost a third of their consumer customers were actually small businesses who were buying Carbonite, because it was cheap and simple. They then began to focus on providing solutions for small and medium sized businesses as the next growth wave.
Today more than 50 percent of Carbonite’s business is coming from products and services for the business customers, taking its consumer-oriented DNA of easy and inexpensive to move up market. “I think there’s a huge opportunity. We have more than 50,000 small businesses now using Carbonite. And we have about 4,000 resellers now who have signed up to sell Carbonite to all these small businesses of which there are about 6 million just in the United States. And then probably there is another 12 or 15 million small businesses worldwide. It’s an enormous market opportunity for us, and wide open, with not a lot of competitors,” says Friend.
David got his entrepreneurial start right out of college when he helped create a music synthesizer company called ARP, which provided technology to Rock bands such as Led Zeppelin, The Who, Stevie Wonder and The Beach Boys. “ARP became a big deal in the ’70s. If you know any of The Who tunes like ‘Baba O’Reilly’, that’s all ARPsynthesizers. We were five engineers sitting around, soldering things together. When we had the first instrument built, we looked at each other and said ‘now what? I was the least geeky of the five, so I was elected to go out and sell it. I made what probably was the first sales call of a music synthesizer manufacturer on a retail music store. Our dream was to make these things cheap and simple so that every high school rock band would buy one, not just The Who, Stevie Wonder or The Beatles, who could afford anything they wanted. We took what had been a $20,000-$30,000 studio instrument and brought it down to a $2,000 -$3,000 item that you could buy in a music store and bring on stage with you. We eventually sold ARPto CBS Musical Instruments, who were buying up companies like Steinway and Fender Guitars and all kinds of stupid acquisitions. They wanted the best in every field, so they bought ARP, along with a bunch of other companies, and managed to screw them all up,” says Friend.
After ARP, Friend took the knowledge he developed from creating programs and helped start a company called Computer Pictures that launched Friend into the software business. Two years after start-up, the company was sold. That led to another start-up called Pilot Software. “My background is engineering. But ever since college, when I started my first company, I have been more focused on marketing. I’ve just been selling the business, I’ve been selling the ideas to customers, and that’s what I really get off on, to be honest with you. I love to see people using my products. I’m glad I have a great technology partner in the business for all these years. I love to see people buying into our dream. What we do as entrepreneurs is see opportunity where most people don’t see opportunity, because you know, if everybody saw it, it would be too late,” says Friend.
What’s next for Friend? “I’m still fully engaged at Carbonite. I feel like we’ve just scratched the surface. I’m involved in a lot of charities and am a very active person with hobbies that I certainly like to spend a little bit of time on. But this business is vast and the directions that we can go in are numerous. It still has that appeal of a startup for me, which is that there’s boundless opportunities to create new products and new services that people will buy,” concludes Friend.
Bruce H. Rogers is the co-author of the recently published book Profitable Brilliance: How Professional Service Firms Become Thought Leaders.
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