Ziv Kedem knows what should be your first step if you want to build a company that will last for a long time. “When we started Zerto, we spent the first 6 months talking to customers, even before we developed the actual product,” Kedem says. And there is an added benefit to using your potential customers’ input to guide your product development: “Customers like that you value their brains, not just their purchasing power,” he adds.
Kedem is the CEO and co-founder (with his brother, Oded) of Zerto, a data protection and recovery startup focused on cloud-based and virtualized data centers. Listening to customers early on has paid off so far, with Zerto’s revenues growing 140% last year, while it doubled its customer base to 800. The company, based in Boston and Herzliya, Israel, has operations in 40 countries. The Kedem brothers’ previous data protection startup, Kashya, was acquired by EMC in 2006 for $153 million in cash.
Zerto is riding a rapidly expanding segment of the IT industry. Already in the third quarter of 2014, IDC estimated that almost a third of the combined worldwide server, disk storage, and ethernet switch infrastructure spending came from cloud deployments, a segment that IDC has predicted will grow over 26% in 2015. This rapid – and accelerating – adoption of cloud computing by companies worldwide is clearly evident in the latest financial results of cloud providers.
Amazon’s cloud business in the second quarter of 2015 reached $1.82 billion, up 81.5% from a year ago. According to their latest financial results, Microsoft, IBM, and Oracle, saw their cloud businesses grow 88%, 50%, and 28%, respectively. Google did not disclose its cloud revenues but Omid Kordestani, Google’s chief business officer, told investors during its latest earnings call, “We’re seeing strong momentum around Google Cloud platform.” China’s Alibaba Group plans to be a major player in the cloud computing business, announcing recently that it will build additional data centers in the U.S. and Asia.
The cloud is changing how IT is done. Zerto’s ambition is to set the standard for “business continuity”—provided through the protection, recovery, migration, and backup of data—for the new era of IT, defined by the de-coupling of software from hardware. This “virtualization” of the IT infrastructure has led to a dramatic increase in the utilization of hardware resources and, as a result, the new efficiencies of scale driving the proliferation and adoption of cloud-based services.
Aiming at becoming the platform for “cloud continuity,” Zerto raised a Series A round of financing in May 2010 (it has raised a total of $60 million so far) and launched the first version of its product in August 2011. “We were lucky,” says Kedem, “we launched when IT had a change in mindset, similar to the shift from mainframes to open systems in the early 1990s. Almost everyone we talk to today has made the decision and they are building everything around virtualization. If not, they will be forced to the lowest common denominator.”
The comparison to the early 1990s is important to Kedem, who points to the large IT vendors that have emerged at the time—Microsoft, Cisco, Oracle, EMC. He believes that we are witnessing a similar shift in the fortunes of IT companies, giving rise to companies like Zerto that are benefiting from the shift in IT’s mindset. “When the IT stack is fairly stable, companies with new technologies will be absorbed by the established IT vendors,” he says. “Today, we are seeing a tectonic shift across all the layers of IT and IT will look very different in 10 years. Everything is going to be automated. The concept of an application comprised of specific physical components is going to be a thing of the past. You will have different solutions for different things, it’s going to be mix and match. But it all has to be managed in a way that you don’t need to invest a lot to build a new application.”
The “big bang” of the early 1990s has created new “best-of-breed” IT vendors, each focused on one layer of the IT stack—storage, networking, databases, operating systems. But this was not just a supply-side phenomenon. There were new business needs for storing much larger volumes of data, mining the data for new market insights, and providing better service to customers by making increasingly “mission-critical” computer systems available 24/7. New IT buyers, such as executives in leading-edge IT departments, business executives impatient with their IT departments, or IT executives that were asked to take over the out-of-control IT systems acquired by the business units, eschewed the vertically integrated IT vendors in favor of the new focused competitors, embracing enthusiastically the new “mix and match” IT mentality.
This is what Kedem believes is happening today with the move to virtualized IT environments and cloud computing and that IT buyers are ready for a new set of focused IT vendors. They are also willing to invest in new IT vendors that provide easy-to-use tools that reduce the complexity of the new IT environment. “Our number one selling point,” says Kedem, “is simplicity or complexity-reduction. If CIOs want to be more strategic to the business, they need to simplify things, otherwise they will spend all their time in the trenches. If you spend all your time fixing the stuff at the bottom, you don’t get to think about how you can make more revenues for the business.”
The cloud facilitates IT infrastructure management and makes IT more agile and flexible. But the various data management tools that come with it must be simple. “Our product is easy to work with and easy to run tests with.” Kedem says. He estimates that “many large corporations haven’t had a successful disaster recovery test in years.”
“Disaster recovery,” Zerto’s initial focus, is the market for solutions to the need of the business to recover smoothly from any event (e.g., natural disaster, human error) impacting its IT infrastructure. In that early era of IT transformation, IT executives on Wall Street, spurred by the first bombing of the World Trade Center in 1993, were ready for a new disaster-recovery solution, one that will be simpler to use than existing solutions and that will scale with the fast-growing quantities of data they were managing.
One of the new, focused, IT vendors was ready for the challenge. EMC engineers developed storage-based software (as opposed to the prevailing server-based solutions) that served as a platform providing various services for data spread over different geographical locations. Initially it addressed the need for disaster recovery, allowing two copies of the same data to run simultaneously in two different locations. But later, sometimes at EMC customers’ initiative, the software (and its subsequent versions) was used for data replication, migration, content distribution, and backup.
The EMC engineers constantly got customers’ feedback not just by talking to them, but also by automatically collecting data on what was happening where the product was installed. Not having the resources to compete with IBM’s vast field support personnel (IBM had 80% of the disk-based storage market when EMC entered it in 1991), the EMC engineers included a built-in PC with each storage device, equipped with software that monitored its health and, via dedicated telephone lines, alerted a “war room” staffed with EMC engineers back at headquarters anytime it sensed an impending failure of a disk drive or any other possible malfunction. This “call-home” feature contributed immensely not only to customer satisfaction but also to EMC’s engineers knowledge of what was working and what did not work, knowledge that influenced the next version of the product, whether the storage device or the software running on it.
In late 1993, on my first day working for EMC marketing, someone asked me where was I from. When I responded that I grew up in Israel, I was told that a group of Israeli engineers was responsible for EMC’s flagship storage product and I was taken immediately to the engineering department. I was introduced there to an Israeli engineer who asked me what I was going to do for EMC. When I answered “market research,” he responded “we don’t need market research, our product sells itself.” That was the end of the conversation because my interlocutor was suddenly called away by another person, and stepped into (what I found out later to be) the “war room,” where he probably helped respond to yet another emergency in the field.
That engineer was Ziv Kedem’s uncle, something I realized only after interviewing Kedem and reading his tribute to his father and uncles on Zerto’s blog. The combative attitude of Kedem’s uncle towards marketing and market research (an attitude shared by the other Israeli engineers at EMC, and constantly reinforced by their leader, Moshe Yanai,) was the result of the desire to have unmediated contact with customers, to listen to their requirements and feedback directly, to develop only products that met specific customer needs.
So Kedem is carrying on his family’s legacy and the legacy of the larger “family” of about twenty-plus Israeli engineers whose names adorn the storage-related and data management-related patents of EMC, IBM, other large IT vendors, and a number of startups. Collectively, they have moved a specific slice of the IT industry towards better, more efficient and effective handling of ever-increasing quantities of data, focusing on practical solutions to specific customer problems.
Now, Zerto is again changing where data replication is being done, from the storage device or the server to the hypervisor, the software managing the virtualization of physical devices. “We have placed a large bet on virtualization,” says Kedem. No doubt because he first talked to potential customers who placed the same bet, customers that found out that an easy-to-use, next-generation data replication tool was sorely needed in their journey to the cloud.
“If you want to build a company for the long-term, you should develop a product that people prefer to buy from a third party, not from the established large IT vendors,” says Kedem. “Ten years from now, I still want to be the CEO of Zerto.”
Originally published on Forbes.com