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CP20: Mohit Aron from Cohesity Talks about Secondary Storage Market and Challenges or Starting a Business

INTRODUCTION

Martin: Hi folks. Today we are talking about Data. Today we have Mohit Aron from Cohesity. Hi Mohit, who are you and what do you do?

Mohit: Hi Martin, good morning from California. I am Mohit Aron, I am the founder and CEO of Cohesity, which is a storage company that intends to disrupt the secondary storage market.

Martin: Cool. What is the secondary storage market?

Mohit: So to understand that, let’s look at storage in a data center. It can roughly be divided into 2 parts, one is called the primary storage and the rest is called secondary storage. Primary storage is what keeps your business humming, it’s the one where you run your mission critical applications. Everything else is secondary storage, everything else that is not mission critical does not require strict SLA’s is secondary storage. An example is backups, or test and development, or analytics, most of analytics is not mission critical. All these fall under secondary storage, that’s the definition of secondary storage.

Martin: Okay, cool.

IDEA OF COHESITY

Martin: So when did you start Cohesity? And what did you do before?

Mohit: I started Cohesity in June 2013 and before that for a little more than 3 years, I was the brains behind and the founder and CTO of a company called Nutanix who are looking to possibly go IPO this year.

Martin: Cool.

Mohit: They are in the area of primary storage, where I, along with the rest of my team, invented the concept that is now called hyper convergence. And that’s what that company is about.

Martin: Cool. So they other company that you started is about the primary storage and the current company is about the secondary storage. So no competition problems so to speak.

Mohit: Yes, no IT or overlap problems. I did not want to compete with my own baby, so to say.

Martin: Cool. And how did you come up with this idea of going to the secondary storage? What type of problem did you see that you wanted to target and solve?

Mohit: I think the best way to describe that is, the light bulb moment when I saw the opportunity that there is a business here. That rose from a single question, which was: “Why are backups an insurance policy?”

If you think about it worldwide in enterprises, people spend billions of dollars doing backups and yet backups are nothing more than an insurance policy. You never use them until you lose data or you need to retrieve something for compliance purposes. So that does not make sense, there is all this backup infrastructure sitting out there that is just there for peace of mind. That didn’t rhyme well, so the question was: “Why are they just an insurance policy? Why not do more with them?” That’s what led me in an exploration path which led to Cohesity.

Martin: When I am thinking about storing data, also is you think of as an insurance premium or so, what makes your company unique if I can use like other Hadoop clusters, for example?

Mohit: Yes, so Hadoop clusters are more for doing analytics.

Here is the reason why our company is unique; we are cohesively addressing the whole of secondary storage. Most other secondary storage solutions only address one aspect of secondary storage, or one pain point.

Let me give you a few examples; today there is one device which you have to buy from one vendor for just doing your backups. Then there is another one for just doing analytics, and you just mentioned Hadoop for that. Then there is another one on which you run tests and development. And all these devices are not used at the same time, one might be idle and the other ones might be used, you have to buy them from different vendors, manage them through different UI’s. So there is all that fragmentation that today plagues secondary storage.

What makes us unique is that we are the first ones who want to consolidate all these different work flows into one platform, and that’s a very holistic look at secondary storage, and that differentiates us from whatever has been done in the past.

So for example, imagine a platform that can do both backups and analytics and test and development and maybe some file sharing. So we are bringing together these work flows that used to run in silos on one hyper-converged and infinitely scalable platform. That’s what we are about.

Martin: Understood. Like if I want to rephrase that it’s like basically a data App store so to speak.

Mohit: Yes, a data lake if you may want to call it, along with other stuff, which for example things run on you, you also need to prevent them from stepping on each other, so you need those controls, so a data lake with all that stuff.

Martin: Cool. When you go back in time, like imagine the first 2 or 3 months or so, what have you been working on? What was a typical day in the life of Mohit?

Mohit: I like to say the company starts on a vision, actually on a light bulb moment and I described the light bulb moment to you. Then the next thing you should do or any entrepreneur should do is a lot of planning for the future. So, there are a lot of filters you apply and a lot of planning in terms of engineering and product management that is done. And then beyond those first few months, it’s all about executing on that plan.

So a day in the life of Mohit was basically doing brainstorming to design how the implementation of the vision would look like, and then also charting out a plan on basically literally which month we would do which part of engineering. And so at the end of it, I gave my VC’s who I raised money from 3 or 4 months into the company, I gave them a plan which basically said that 2 years from then, I would GA the product based on my plan, and low and behold, in October 2015, we GA-ed our product.

Startups are a lot about planability and a lot of people think that a lot of it comes from luck, but the most successful startups actually plan it all, and then it becomes a matter of execution.

Martin: In those first 3 or 4 months before you raised money from venture capitalists, how did you assemble a team supporting you and working on this? And how did you finance it? And what did you try to achieve during that time in order to show that much traction to investors so that they invest money into your company?

Mohit: Right, so I would say the process actually started before I incorporated the company. I actually incorporated the company in June, but the brainstorming with the initial guys stated much earlier, around March 2013. And so basically I have, from my last company I had built up a little bit of a reputation, so people wanted to join me in whatever I want to do and the best way to kind of help them start or we all start is for us to do was brainstorming.

For a good 2-3 months, we were literally sitting and dissecting the market on what are the gaps in the market. So we dissected the market into storage, virtualization, security, mobile space, any area that we felt we have the expertise to address. And then we looked at all the past companies in the last 3 years that VC’s have funded in those areas, and that led us to kind of draw patterns where the goal is moving in those areas and where the gaps are. And once we were kind of happy with the gaps then we made a decision, okay well this gap is worth doing a company on. And that’s what led to the founding of the company. And once the company was founded, it was all about sitting and then doing a different kind of brainstorming, which was about how the design of the product is going to look like and how the planning is going to look like in the future.

So those were the first few months of the company, and your question was how did I assemble the team, well, they just kind of followed, some of them came, they had worked with me in past companies, some of them had heard about me, some of them were just interested in joining early stage startup and they heard from some friends there might be one coming here, so just a plethora of people. So we had about, somewhere between 5 and 10 people that we had. I funded it myself, I put in some of my money, I realized that just renting a small space doesn’t cost much here in California, it costs about $1000 a month, and so I rented a place where we all used to come and we used to do brainstorming. I wasn’t paying any salaries before the company was founded. And once the company was founded, I put in some money of my own to basically pay the salaries, and these were smaller salaries with the understanding that once we get the proper series A money, we will be going to market salaries, and so that’s how the company bootstrapped.

Martin: One question comes up to my mind; when I am talking to other tech founders, sometimes they are talking about IP issues, intellectual property so to speak. How did you manage that because you had 2 phases in the starting phase: you had one which was an informal one where the different people brainstormed about a solution, how to move forward, and then you had a formal kind of set up of the legal entity which is more kind of clear who owns the IP on what is generated. How did you migrate from this informal state to the formal state so that you are sure that nobody comes after you?

Mohit: That is a fantastic question, and any entrepreneur who is going to brainstorm before doing a company should follow what I did. I took advice from a lawyer, and the lawyer said: “Okay do this; you have rented a space for doing the brainstorming. Now you make everyone, whoever comes and does brainstorming with you, they should sign something that says any ideas generated under that roof belong to me.” And so what that means is no one can come behind and say: “Well, that was my idea”, because those ideas belong to me. Now if you are not happy with that, well you can’t come to that brainstorming.

That was the arrangement we had and it was on my honor; so let’s say we came up with 5 ideas, and we decide to pursue one of those ideas ourselves for doing the company. Now the other guys who are welcome to pursue the other ideas, and it was on my honor that I will not go behind them and say: “Hey even though the IP belongs to me, if they become big later on that I will come behind them.” That’s on my honor, that’s on my reputation and if you are not happy with this arrangement, well you just don’t have to come. So that’s how I protected. Later we had some written statements from these guys that any ideas that were generated are going to be assigned to me.

Martin: Makes sense.

PITCHING TO VENTURE CAPITALIST

Martin: So when you talked to these venture capitalists, how did you reach out to them? I suppose you had some initial contacts already because you started a company before and what was your pitch like to them, in order they ship a significant amount of money?

Mohit: Yes. I will talk about what happened in my case, but I will also talk about what happens generally to any other entrepreneur out there because what happened to me is not general enough. Because I had a little bit of reputation from my last company, so venture capitalists were actually knocking down my doors literally as soon as I left my last company. Every week I used to have 2 or 3 meetings with venture capitalists, I did not invite those meetings, they wanted to just fund whatever I had to do. So it was literally me holding back taking the funding, and as soon as I was ready, literally in 3 days the funding was closed. And it was closed from the best VC in town which is Sequoia.

So that was a little bit special, but I think the way regular entrepreneur who is maybe doing the company for the first time, my advice to that entrepreneur is the way to proceed would be to first get the idea on down,  do the kind of brainstorming I suggested, and then once it’s finesse a little bit, what they should do, and at this stage they probably have 2 or 3 ideas that they think they can do a company on. Now they should go and reach out to some friendly VC’s, VC’s that maybe their friends know are friendly, and just informally work with them, and have them tell you what they think about the idea, rather than just going and formally pitching to the VC and then it becomes a zero or one decision, a “yes” or “no” decision. What I would recommend is just go to the VC’s, just have informal discussions on a white board, tell them what you are doing, have them help you in finessing the idea and towards the end of it, you and that VC have together worked on the idea to its finesse and then he is far more convinced to put the money in. And you can do it with a couple of VC’s or just one VC. I think that’s a very productive way of shortening the time you can engage with VC’s, as opposed to just kind of reaching out to VC’s, okay I am coming to present okay now tell me you are willing to fund me or not. For a new entrepreneur, that can be kind of taxing because, you know VC’s are all about risk management, and they may not jump right away.

Martin: So imagine, I am a first time entrepreneur, I have some idea, maybe I already have already an MVP and tested and have some minor traction. And now I would like to follow your steps and say: “Okay, I want to find 1, 2, 3 VC’s that are well known, have sufficient capital to put up and I want to get in touch with those in order to have these kind of white board sessions.” How do I convince them to spend, I don’t know, 1 hour, 2 hours, how much time typically you would do that? With what type of pitch would I do to convince them?

Mohit: I would first of all recommend going to them through someone you know, who is in touch with them. One example is, there are angels throughout the valley, and these angels can connect you to VC’s or I am sure everyone has friends who have done companies in the past and they have worked with these venture capitalists. If you don’t have that, well try finding out just by talking to people who these friendly VC’s are. And then just maybe writing them an email with possible a pitch deck and then saying that you just want to come and socialize with them.

So that’s the way you can start, and then go from there, and I am sure there will be a lot of things in the beginning, not every VC would open up to it, but I am sure you will find some, because you also have to realize, not only are entrepreneurs searching for VC’s. VC’s are also searching for entrepreneurs because they have all this money that they have to invest. And if your profile looks good on paper, if you have worked in good companies, your background is good, they actually want to engage with you, they want to see if they can help you and get a business started. It’s all about investing money and the VC’s are actually they are in the business to invest money. So you would be surprised how good the VC’s are in being helpful because it’s in their own benefit, they can potentially get an insight, and early insight into where the company might go and they get to invest at an early stage.

Martin: Imagine, I would have come up with some similar idea of Cohesity, of going for the secondary data storage market. How would I then select some VC’s that I would like to talk about my business model? Because I don’t want to compete with lots of portfolio companies of specific VC’s maybe because I don’t want to give some insights which they then can use for companies that they have already invested in. How would I then decide?

Mohit: The way you decide is, so you look at the various VC’s in town who are known to invest in storage. Every VC is good in something, they have a couple of areas they specialize in. And so you will choose a couple of VC’s who have invested in storage in the past, then you will look at their portfolio and see if there is any company that can flex with what you do. So those VC’s are out, you will not go to them, they will not be able to fund you. And so from the remaining list that is left, you would say: “Okay, here are the individual partners at these VC firms that might be interested in funding something like this.” So then you would try to find out ways to connect with them through friends, through other known people in the Valley, or just a blank email if nothing else works. And so that is how I would advise going about stuff.

Martin: Great.

FINDING FIRST CUSTOMERS

Martin: Mohit, let’s start about thinking once you have developed some kind of MVP of your platform, how did you find and acquire the first customers? And can you give us some kind of insights on what a typical customer or customer segments look like?

Mohit: Let’s step back a little bit and understand there is a method to the madness. So I would encourage everyone to study what is called the technology adoption curve, which was proposed by a gentleman called Jeffrey Moore, in a book called Crossing the Chasm, it’s a very famous technology adoption curve. And what an entrepreneur needs to realize is that the initial adoption is done by what are called early adopters and innovators. And then once that phase has passed, there is a chasm, a big chasm that we have to cross and then there is something called the early majority. And so the early phases of the company, the first 3 or 4 years of the company are all about these phases. And your MVP has to not target the early innovators, it has to target the early majority because those are the guys who will eventually determine that you will be successful. And early majority is defined roughly as customers who normally will not buy from a startup but their pain is so high that they cannot go to any branded company out there to find a solution for what they do. So your MVP is addressing a pain point for the early majority.

Now once you have developed that MVP, now the way to find early adopter… There are several ways, an early adopter might just be through a friend working at a company, and you say, hey can you do me a favor and start testing my product, or introduce me to someone in your company as a favor will start testing your product, that’s one. There is no reason for him to buy, he is just doing you a favor.

Another way to do that is, you know I would encourage entrepreneurs to find some influential advisers, and these advisers might be executives from successful companies in related areas. So the whole idea is not only do they give you advice on what to do and what not to do, but they also potentially connect you to customers.

So in my company, I got my early adopters through my advisers. I have advisers from Riverbed, there are a couple of gentlemen, one is called Eric Wolford and these are the advisers that connected me to Riverbed customers, and these were good customers of Riverbed that had developed relationships with these advisers over time. And so they were more than willing to listen to them and say: “Okay, I think I trust your word that this is a technology I need to look at, and I know it will be rough in the beginning, but I am willing to help these guys.” I mean they also feel great that they are helping a new entrepreneur and a new company.

That’s how we got our first product in their hands. For us, one of the earliest ones was as thankfully a media company in Chicago, and the CIO of that company, his name is David Jim Bruno, he is a big fan of what we do, and he was more than happy to be an early adopter and go through those rough ages. And you will find actually press releases that he talks a lot about us because we have improved his data center tremendously cutting down costs and stuff. That’s what an early adopter sees, that yes he understands that there is going to be bumps in the beginning but eventually the end goal for his organization is good. And especially when your advisers are saying that this person, this company is to be trusted, something to be looked at, they will jump.

That’s how you start. Maybe your VC’s introduce you to those customers, maybe your advisers introduce you, maybe some friends introduce you, that’s how you start. And you make those guys happy and you make those initial customers very happy, you are very responsive, you are engaged with them, you develop relationships with them. That’s how you start and once they help you finesse the product a little bit, then you go forward and get a few more early adopters. Then once you are happy that there is some early adoption, that’s when you try to cross the chasm and start shooting for early majority. Remember though that your MVP was already made for that early majority, so now you are ready for taking on the market.

Martin: Cool.

FINDING ADVISERS

Martin: Mohit, imagine I am starting a company and I am looking for these type of advisers that you are referred to, how do I find, convince and incentivize those people?

Mohit: Yes, you know there are various ways; you can find them through friends. If you have VC’s, I mean by this time, I mean you have a product and you are going to customers, so you probably have some venture capitalists, those guys will connect you, they will recommend who might be relevant in your field. You yourself would know from the past… So as an example, I am doing a storage company but it also happens to be an enterprise company, so I know that other enterprise companies are going to be relevant. Senior guys at other storage companies or senior guys at enterprise companies I gave an example of Riverbed which is an enterprise company, so I know that senior people from that company would be relevant and they can give me good advice into how I should proceed.

That’s how you know, and then the way you connect to them is either your VC’s or your other advisers or maybe some friends. In my case, a little bit of the reputation helped, a little of my past helped. Some of these guys had already connected to me when I was the CTO of my last company, so I got some of them through that. Other guys I just got through friends, through VC’s, Sequoia connected me to some of them. That’s how you connect, it’s very organic, there is no set formula for getting these guys.

And the way you incentivize them is basically you try them with some equity so they have asked, who are providing that advice over the next couple of years. And it’s very standard in the valley, I mean you choose, these are standard numbers based on how early the company is, it might be a little bit more than a little bit less, but there is a range. And as long as you are within the range and these guys are actually interested in helping you out, they will become your advisers, and that’s how you start.

Martin: What is a typical equity range in the valley for advisers?

Mohit: Well if you are very early, it might be, depending on the quality of the adviser, it ranges from .1% – .5%. Depending on what’s the caliber of the adviser, has he been CEO of a big company and is a big name, then clearly he will be on the higher side. But if he has not been there then it’s a little bit on the lower side. It also depends on how early stage the company is, if you are just starting out, maybe it’s a little bit on the higher side, eventually it’s also a little bit of negotiation.

But on average, maybe .1% or .2%, you know, that’s what the advisers will take.

Martin: And because you said that they are also vesting, is it also similar like with employees who are vesting that if the adviser does not perform well after 6 months, 12 months, 18 months whatsoever that he will not continue to vest anymore?

Mohit: Yes, I mean the clauses, these are up to your lawyers, so your lawyers will draft up the advisory agreement and the agreement says that in case either of you is not happy with each other, you can terminate that advisory agreement. And so yes, as soon as you terminate that agreement, he will stop to vest. So it’s exactly kind of like an employee, he just doesn’t have the other benefits that employees enjoy, he is not paid a salary, he doesn’t have any health benefits, all he does is be basically vests equity. In rare cases you may even be paying a salary, I have not done that with any of my advisers, but I know some companies that do that, they also pay a little bit of salary to their advisers.

It’s all based on negotiation but generally speaking it’s just equity. And they vest and that’s it, and if you don’t like what they do well you can terminate the advisory agreement.

ENTREPRENEURIAL ADVICE FROM MOHIT ARON

Martin: Mohit, imagine a friend comes to you and says: “Mohit, I want to start a company.” What type of learnings that you generate for yourself that you can share with him so he makes less mistakes?

Mohit: Yes, so very interesting question. The first question I ask is: “Are you doing a company just for the sake of doing a company, just because you want to become an entrepreneur?” That’s the wrong reason for doing a company. A company is all about, in my mind, 2 points; the first point is where the world is today and the second point is how the world will change when your company is selling the product. And that difference, unless it’s meaningful, you really don’t have a company. And the entrepreneur needs to have a passion for changing the world in that way. It shouldn’t be that he got the idea from somewhere but he really doesn’t have a passion, he is just doing it because he wants to be an entrepreneur. So that’s the first thing I say; that you really need to have a passion for changing the world in that fashion with your idea. If you don’t you need to think twice about whether this is for you because there are going to be head wings when you do it and it will make you question whether this is worth it, and the only thing that will keep you going is your passion.

That’s the first, but then second, I like the entrepreneurs to think about whether it’s a business or whether it’s just a project within a company. A lot of people, they are working in a company and they come up with a cute idea that would be helpful to the company that they are working in, but it’s not a business in itself, so evaluate whether it’s a business. I use a bunch of filters for that, I will give you some examples; one example is how big is the market? How big is the TAM, the total addressable market? If the market is less than 5 million dollars bag, you are going to have a hard time, selling in that market and very likely VC’s will not even fund you. That’s one of the filters. Another filter that I have is how long is it going to take to build maybe a hundred million dollar business? And if the answer is 20 years, well VC’s again are probably not going to fund you. So some of these filters are applied to the idea that you have, and then as a result you evaluate whether it’s a viable business or not.

A lot of entrepreneurs they are technical, as I am by the way. And we techie guys fall into the trap where we get seduced by the cuteness of the technology, but a company very frankly is all about building a business. And there has to be a business behind that technology, otherwise, it’s going to be a very frustrating journey.

So that’s what I advise, you know my advisers are to evaluate the business behind the technology. There is a phrase: “Is it a solution in search of a problem?” So as long as there is a problem and the problem is big and you can actually build a business around it, and then you can come up with a solution for that, and that’s what I start off as my first advice.

Martin: How do you approach the strategic thinking? How do you enter a market once you have defined for example that you want to go after the secondary data storage market? Because you need to define some kind of market entry strategies and how you want to put yourself and your company into a position of competitive strings. And how do you approach this from a thinking perspective?

Mohit: Right. So first of all in my mind there are all sorts of companies; there are ‘me too’ companies which are just doing something that someone else has already done. There are companies that are really trying to innovate and push new boundaries. I like to do the latter because it’s much easier entry, you are addressing a pain that no one else can address.

The first thing I like to do, and this comes from the brainstorming that I talked about earlier, the first thing I like to do is in that brainstorming, address or identify those gaps that exist in the market. So you look at maybe the storage space, and you chart out, in the last 3-5 years all the companies that have gotten formed. And then you question why did they get formed? Why did the VC’s fund that? What do these companies want to accomplish? And with that, you have an idea of the gaps, you start seeing the gaps. Okay, there is a gap here that no one has addressed.

And then you question whether it’s worth doing a business on that gap. Once you have made sure that you have a business, you essentially made sure that once you build a product there, you don’t have anyone else who is quite doing what you are doing. So now you are addressing a pain that no one else quite can.

There is a risk, you may take about 2-3 years to build your product, your first product. Someone might copy you in that time, so one of the things that you got to make sure of is whatever you do, it should be hard to copy, it shouldn’t be that Stanford grad comes out in 3 months, he is able to assemble a team of college grads and they are able to copy you. That’s one of the filters I use, then it’s not a viable business.

And so essentially now you have made sure that once you have come out:

  • it’s a, going to be hard to copy you, and
  • there is no one quite doing what you have been doing.

Now it’s all about entering the market, now it becomes a problem of identifying who the early adopters are and that’s where your advisers and your VC’s would help. So given that you had identified a viable pain point, and the fact that no one else quite is doing and addressing the pain point. Now the next point is to get those early adopters and have them use your product. And once they see the light of day, maybe one day they will buy. So that’s how you basically go about it.

Martin: Great, thank you so much for your time Mohit, and thank you for the advice that have shared with our audiences.

Mohit: Yes sure, welcome.

THANKS FOR LISTENING!

Thanks so much for joining our 20th podcast episode!

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Special thanks to Mohit for joining me this week. Until next time!

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