Frontier Exclusive Visionary Interview for hardware, software, system related business and and academia



Frontier Journal (FJ): Dave Hitz is our today's special guest. He's the co-founder and Executive Vice President of Network Appliance. Dave, Network Appliance is a member of NASDAQ 100, SNP 500, and Fortune 1000 multi-billing economy. Why is it so low-key compared to EMC, among your other major competitors?

Dave Hintz (DH): I think the big answer is because we've grown so quickly. When I look at how visible a company is, I used to think the visibility of a company was based on its size. But, what I'm realizing now is, I think the visibility of a company is based on its average size over the last five or ten years and that has grown so quickly that it's just kind of recently that we've become so, so large.

The other thing, of course, compared to a company like Apple, we don't sell to individual users, we sell to high-end storage infrastructure. And so, advertising in the Super Bowl or that sort of thing, it's just not going to make sense for our company. But, certainly, one of our hopes is to become more visible.

FJ: Sure, I understand. So, in 1992, Jim Lowe and you started Network Appliance and it got funded by Sequoia Capital, one of the most leading venture capitalist firms in Sandhill. So, I was surprised, there was nothing on the Internet about how you guys started your business. Could you tell us something about your start-up expense during those early days?

DH Sure. You know, I'll tell you something funny. We tried a lot to get venture capital, and you're absolutely right, Sequoia was a big funder, but Sequoia did not fund is - in fact, no venture capitalists funded us - until after we shipped product. And so, the very first investment we got - we got $50,000 each from four guys who are all Silicon Valley people, and we used that $200,000 to get started.

And we were hoping, we thought that would be the seed money and then we'd be able to get money from the venture capitalist plan. Until, I'll tell you what, the one thing they did understand is that when we had product, at that point the VC said 'OK, wait a minute, the customers actually paid for this?'. But, the challenge was, our whole idea was to invent what we called an appliance; a box that did just one thing. And our competition in the early days, we were building file servers, our competition was Sun Workstations running file servers.

And our idea, we looked at Cisco and originally, when people wanted to buy routing equipment, they would buy a Sun Workstation doing a TCP/IP routing and Cisco came along and said 'this TCP/IP routing, we think it's here to stay. We think there should be a separate appliance just for that'. They didn't call it an appliance. But the VCs could never understand that story. So, when we said we think there should be a box that does just file service, they kept saying 'so it does more than a Sun Workstation?' and we said 'no, no, no. It does less.' They never could understand why someone would want a special purpose device that does less. But now, I think everyone understands the idea of an appliance. That fundamental idea has really caught on. I'm pleased with that.

FJ: So, before venture capitalists came in, was Network Appliance funded by angel investors?

DH Yeah, in fact, because we couldn't get venture capital money after we got that $200,000, each of the first four came in for another $50K. So then we were up to a total of $400,000 we'd raised. Plus, they brought two more friends who came in for 100 each, almost 2 million dollars in angel money. The good news about angels is if they realize their investment is about to go away, and if they still believe in your technology, they start hunting down your friends. That worked out really well for us.

FJ: So you mentioned VC, typically, in the early days during the inception phase, it was harder to convince those venture capitalists to fully understand what you were doing. So, how did you guys spot a whole new opportunity and create a whole new industry back 15 years ago?

DH The interesting thing is James Lowe and I both worked at Auspect Systems, which also did a storage device, but that system ran on Unix. And so, the big observation was 'well, what if we just didn't use a general-purpose operating system? What if we made a device - just like Cisco did - a device that was just focused on how well you can do storage?'

You know, if you look, there's a lot of network devices like that. Printers these days are network attached devices. Things that used to be peripherals on computers. There was one other founder as well, his name was Michael Malcolm. And, although he's not still with the company, he's a very, very smart guy and actually, he was the person who came up with this idea of an appliance that did just one thing. That really was Mike's idea.

FJ: I see. So, what is your interpretation of the model of computation say, 15 years ago, when you guys started your business, now, and 15 years from now? And, what is the intent of the change of the multi-custodial industry?

DH I've got this big picture view of the history of computing over the past 30 years. And, I'll tell you what it is roughly. When I look at the decade of the 1980s, I believe the decade of the 1980s was the decade of 'put a computer in front of everybody's face'. Before that, computers were big, expensive things in a back room someplace. And during the 1980s computers became something on everybody's desk at work and increasingly at home. So, that was the '80s.

I would say that the 1990s was really the decade - and the '80s, by the way, is the decade of Microsoft as a result of that, and Sun for technical computers, a workstation. The '90s, the era of the '90s, was about 'let's network all of these computers together. Let's put wires between all of them so they can talk and we'll set that up'. And, naturally, that was the era of Cisco.

And when I look at what's happening now, I see once you have a whole bunch of computers in front of everybody's face and they're all networked together, suddenly what you worry about is 'what's the content that people want to look at?' So, I really believe that the 2000s, the decade we're in now, is the decade of content. And, in fact, it's interesting - you talked a lot about the size of Network Appliance and multi-billion and how big - and if you look, there's only a couple of companies in the Fortune 1000 growing as quickly as Network Appliance. The two companies are Network Appliance and Google and both of those companies are really about this decade of data. Now that everybody's got a computer and they're all wired together, what are we gonna look at? Network Appliance is about storing it, holding it and Google's about finding it.

FJ: Now, the model of computation is concerned about how hardware works. Now for software, software products-based model to service-based model during the past several years. So, what is the intext of such change to the network storage industry?

DH The service-based model is an interesting question. One of the impacts for us is that a lot of our customers are just enormous because of a service-based model. Let me give you an example; Yahoo is one of our biggest customers and of the things that Yahoo's storing on our system is all of the individual email accounts. Now, if individuals were storing their own email, we'd have to go sell a billion really small systems. Or even if it was small companies, pretty small systems to them. When we're selling storage to Yahoo, Yahoo is storing I believe they have over 750 email accounts. That is petabytes and petabytes and petabytes of storage.

So, from my perspective as a storage vendor, and I think if you look at other storage vendors who are in the infrastructure business, one of the biggest concern of outsourcing or centralization the service model is a very large concentration of computation. Oracle is another example. Oracle is now in the business of outsourcing so that any company can say 'you know, I don't want to do it. Let's run it to Oracle and have them run it on their computers, their networks, their storage' and they manage the whole thing. And that creates just enormous data centers. I believe the service model, from my perspective as an infrastructure vendor, it just creates enormous data centers to sell into.

FJ: I see. You mentioned that two decades ago, it was computing. All about computing.

DH And now, data.

FJ: One decade ago, it was all about networking. This decade, it's all about storage and data. So, what's your vision, your perspective, about how those three factors interact with each other and do you envision that those three factors are going to be consolidated into a whole new combined factor; computing, networking and storage?

DH There's always been the question 'when it is that a customer would rather buy something from a single consolidated vendor.' Like, when would they just rather go to IBM and when would they rather work with specialists? And the reality is most customers will only work with a handful of specialists. So every little business in the world at some point asks someone to pull the pieces together.

But, when I look at history, it is interesting. In the very early days of compute, you would typically go to IBM and just buy everything from IBM. Or you would go to HP or DEC and buy everything from them. But as some of these new areas have emerged, like networking, it creates the opportunity for a whole new company that just focuses on that one thing, like in the case of networking Cisco or Nortel. I think that the database is another interesting example. That became so important that Oracle could come in a compete effectively with the big guys.

So, here's my theory; if a market is relatively small, then it can go for a while, but eventually, it will probably be absorbed by the big guys. But if a market turns out to be big enough, like networking was, then it can emerge as a separate market with major new players. Like, for example, Microsoft in the OS business. Nobody was an independent OS vendor, but it's so big and important. Cisco and networking. Oracle and database.

And here's what I believe; data storage is a big enough market to justify a permanent separate set of vendors selling into it. We analyze the whole data oddly to find data management, disc drives, tape drives, all the back-up software, data management software that services people. But that whole market's about 85 billion dollars. Enormous. So, I do think there will be ongoing consolidation but I don't think the whole thing will turn into one consolidated chunk. But there will be multiple vendors playing.

FJ: I understand, in the future you will still need a specialty. So, what was your feeling when your co-founder had to step down when new top executives were being introduced by VCs?

DH I'll tell you Mike Malcolm is a genius. After Mike Malcolm left Network Appliance, he went and started another start-up company called Cash Flow and that company also went public. And I told you the basic idea of the appliance was Malcolm's. So there's no question in my mind that Mike Malcolm is absolutely a technical genius.

But, Mike is not a management genius. So, Mike was exactly the perfect guy to be the CEO as we were getting started. But, as we grew, it became appear ant - and in fact, when we first started, Mike had told us that he didn't expect to be the CEO forever. Mike had a saying that I thought was funny. Mike said, " the founding CEO of a high-tech company should never keep more stuff in his office than fits in a gym bag." That was rule number one. Rule number two was Mike said, "A high-tech CEO should always keep a gym bag with his things."

The CEO that we got, Dan Wormenhoven, has been the CEO ever since 2004 and I love the guy. We were so lucky getting someone as good as him who has the potential to grow. So it was traumatic at the time but it was not forced. James and I were ready to have someone who knew how to manage. Dan had managed at a public company and managed thousands of people at HP, so he was very experienced in this. FJ: So, according to my understanding, typically, co-founders in start-up leave to pursue other opportunities; either retiring acting as the CEO entrepreneur extra after those start-ups went public or got acquired. So what prompted your partner, James Lowe, and you to stick with your company from its inception until now? For over 15 years. It's amazing.

DH I actually get visits occasionally from founders of start-ups and they say 'my venture capitalist sent me to talk to you because the hat life of a Silicone Valley founder is about three years and they want to know what your secret is' I can tell you for myself, and I've talked to James about this as well, early on James and I both made a decision that we were very interested in watching Network Appliance grow and in helping it become a successful long term company.

And I think some founders care more about the technology itself than they do about the company - and that's fine. If they want to be technologists, that's excellent. But the reality is that a lot of times as a company grows it's not necessarily the best place for founders to experiment with new technology. Because before you ship anything, it's all exciting, you're inventing your ideas, and you don't have to worry about customers and customers are just a pain in the butt when you get them, right? There's a different mindset when you say 'you know what, I really care about customers and I'm very interested, over time, in figuring -

I'm not saying one's right and one's wrong, but if you don't really, really care about the customers and care about the business, you probably should go to academia or you should probably be the CTO at a bunch of start ups. If you get interested in the business and interested in the customers than staying at a single customer and watching it grow, it's like raising a kid - it's great. It's been very, very satisfying for me.

FJ: So, your business concerns of timely data backup and retrieving for faster, affordable, reliable and secure. Now what's up ahead beyond SAM and storage area network and NAV network attached storage? What's ahead?

DH SAM and NAV are intricate technical issues that, to me, they don't really matter that much. Let me make an analogy; people may remember ten years ago - it might even have been 15 years ago now - there was a big battle in the networking world between routers and switches and Cisco built routers and that was really the thing that they focused on. And there were other companies that built switches. Cisco said 'no, no, no, routers are better' and the other company said 'no, no, switches are better'. And, eventually, people realized that this is a stupid technical argument that doesn't matter, except to the engineers doing it. And these days, you buy a router or a switch, you can barely tell the difference. They're so close. I believe NAV and SAM are the same way.

That's almost missing the point. Let me describe what we do differently. If you think about all of the problems that you have individually owning a PC with data on it what are this issues you worry about? Well, one issue you worry about is 'what if something happens to my disc. I want to make sure I don't lose my data, anyway'. Another issue you might worry about is 'what if my house burns down and the computer that's sitting in it breaks?'

If you're a CEO who owns thousands and thousands, and in some cases, hundreds of thousands of discs, you've got these problems plus what if the FCC shows up and says 'when did your CEO first get an email about this subject?' These are the kinds of issues we're helping customers with. And if you think at that level - managing data, finding data, dealing with litigation, dealing with requirements of owning data - you're much more at the level of understanding what [xx] about than if you're talking about NAV and SAM. Am I making sense?

FJ: Yeah, sure. So you are a very busy blogger. How do you manage to squeeze your time in blogging with your such tight bandwidth? You are one of the top executive bloggers in the Net.

DH I have a really interesting position at Network Appliance. And I'll tell you five years ago there's no way I would have been able to do a blog like the one I'm doing because five years ago I was running all of engineering and I had almost a thousand people reporting to me over the first three years that I started running engineering. And we grew the whole staff from 250 people to 750 people. So, just enormous growth.

But, more recently, I've taken a very interesting role, which I call "company philosopher" and that gives me a lot more time to think about 'where are we going?' 'what are we trying to accomplish when we make decisions' 'why do we make the decisions? And I think that's very important for maintaining the culture of a company - to tell the story as much as you can to the employees of what you're trying to accomplish.

So I actually came up with a tool for doing this. Starting about three and a half - almost four years ago I wrote something. This was just after we'd recovered from the '.com' crash. When we were at the top of the '.com' boom, we got to a billion. Then when it crashed our revenue went down to about 800 million and it took us several years to get back to a billion.

And when we did that, I really asked the question 'where are we going? What are we trying to accomplish?' I talked to all of the management and other folks at Network Appliance and I did my best to write it and I wrote it like a history. I wrote it as if it was 2007 and I was looking backwards. And I did my best to tell the steps and describe what the company was like. And that really motivated people and a lot of the individual groups in the company went and wrote their own future histories just for their group.

And it's 2007 now and, in fact, we've accomplished almost all of the goals that as a group we set out that I wrote down in the future history. And so I just did the exercise again and wrote out what's the future history - what would we feel like as a company at 6 billion dollars and at 10 billion dollars. Really trying to describe the steps to take to get there. So that's been great fun for me.

But the good news is that it gives me more time to think. A lot of times what I'm writing in the blog is just the stuff I'm thinking about that week.

FJ: That'd be great, yeah. So, I have one more question to go. As you know, all high tech industries are energy consuming. How do you balance your work and your life? What is your most favorite sport?

DH You know, one of my most favorite things is traveling. I have the luxury to have my wife who can travel with me sometimes - last time I had the opportunity to do some business travel in New York, she came along with me and we stayed for the extra weekend and had a chance to see a Broadway play. So that's a lot of fun.

I'm not really a team sport player. I'm much more of an individualist or an introvert. I spend so much time at work hanging out with people that when I come home, I'd rather not hang out with a lot of people. But I love to go for hikes and stuff that's more of an alone kind of thing.

FJ: Great. So, thanks for your time, Dave.

DH I enjoyed it. Thank you very much.

FJ: Yeah. Thank you, thank you. Bye-bye.

DH Bye.


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