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Isilon Systems co-founder and CEO |
The moment of truth for Sujal
Patel came in 2007 when he had to tell his wife, then pregnant with twins, that
he wasn’t going to take that planned long paternity leave after all.
Instead, he would assume even more
responsibilities at work. “I think I’m going to have to take over the company,”
he told his wife.
Coming from another 33-year-old
with a bachelor’s degree in computer science that remark might have sounded
brash. But Patel had co-founded Isilon Systems, a maker of high-capacity disk
storage systems for networks. He had been its first CEO when it was founded in
2001 and remained in charge until he stepped aside in 2003 to allow Steve
Goldman, a former executive from neighboring F5 Networks, to step in. Goldman,
the board felt, had the experience the company needed to advance to the next
stage. Patel had remained with Isilon as its chief technology officer and as a
board member.
But now Isilon was in serious
trouble and the board wanted him back. Goldman had led Isilon through a
scorching hot IPO at the end of 2006, when its initial $13 offering price
rocketed to $27 in its first trading day, valuing the company at more than $1
billion. But then an internal audit revealed that the firm was recording
revenues for sales that had never been completed, thereby overstating its
growth. Wall Street lost confidence in the business and the stock price plummeted.
Just 10 months after the IPO, Isilon’s market share had fallen by more than 75
percent.
Patel agreed to return as CEO, in
spite of his desire to spend time with his newborns, because “I had a
deep-rooted sense of what we needed to do and a desire to drive it.”
Patel moved quickly to overhaul
the company, replacing virtually the entire executive team. He sharply reduced
costs, which had ballooned out of control, and moved to re-establish customer
confidence. In the fourth quarter of 2009, Isilon managed to turn the corner,
pulling in a profit of $140,000, a huge improvement from the $4.3 million loss
suffered in the same quarter during the prior year.
Most impressive, Patel oversaw
this dramatic turnaround in the middle of a terrible recession that had caused
reduced overall demand for storage systems. Last year, Isilon made $124 million
in revenues. That’s about an eighth the size of its chief competitors, EMC and
NetApp. But Isilon is among the fastest growing companies in the business.
Industry tracking firm IDC
predicts that the market for external disk storage systems will reach $23.5
billion in 2013. While Isilon is a small player in the overall market, IDC
analyst Benjamin Woo says it has a strong position in one of the fastest
growing segments, clustered Network-Attached Storage (NAS), which are systems
used to store data for the web. Given customer satisfaction with Isilon, Woo
says, “They’re very well positioned to capture a much wider opportunity and
larger part of the market.”
It was as engineering managers at
RealNetworks that Patel and Isilon’s co-founder Paul Mikesell first got their
idea for the company’s technology. They saw how poorly most disk storage
systems handled the kind of data increasingly exchanged over the internet. Most
had been designed for retrieving small chunks of information, like bank
transactions, not the large, continuous image, audio and video files networks
would now have to deliver. Also, these systems were hard to expand as the need
for storage capacity grew.
Isilon’s current generation of
high-speed systems can store up to 1.4 petabytes, a unit of a million
gigabytes. Put another way, that’s the capacity of well over 5,000 desktop PCs.
Since its 2001 founding, Isilon
has gained an impressive list of customers that includes NBC Universal,
Paramount Digital Entertainment, Corbis, Eastman Kodak and Facebook. Most
recently, Isilon’s units helped store the digital data that went into James
Cameron’s 3-D movie Avatar, as well as
for Disney’s recent computer-animated films.
These wins buoyed Patel’s outlook
when he took the reins again in 2007. (Co-founder Mikesell had left the company
in early 2006 to launch Silicon Valley firm Clustrix.) “There was nothing
fundamentally wrong with the business,” Patel says. “The value proposition was
very clear.”
Yet Patel also felt the company
had, in the IPO’s afterglow, lost the frugal, aggressive energy that had led to
its early success. After putting a new management team in place, only two of 12
top executives remained.
Patel used innovative approaches
to slash operating expenses. He held a contest to see who could stay in the
cheapest hotel. Later, as the recession deepened, Isilon also cut its workforce
by 10 percent. The company now employs about 365.
“A startup has to be more aggressive”
in its outlook, Patel notes. He says it’s unclear at what stage a company is no
longer a startup.
Isilon faced a classic business
puzzle: To grow, it needed to attract the high-volume enterprise customers of
the Fortune 50. But to do that, it had to show growth as a long-term player
that would be around to serve its clients’ needs in future years. “Storage
buyers treat their vendors a little like a bank,” Patel explains. “They’re very
conservative. Seeing a steady improvement in profit is important to our
customers.”
Isilon’s cost cuts enabled it to
invest more in new products and service infrastructure. The company also
developed partnerships with larger, more established businesses. It recently
made a deal with Alcatel Lucent, for example, to supply the market for
distribution of movies and television through cable and the internet. And the
company’s systems are finding wider adoption in biotech to store massive sets
of genetic sequencing data as well as in semiconductor manufacturing.
“Storage for bioinformatic or
biotech research applications is a significant market,” says Matt McIlwain,
managing director at Madrona Venture Group, which was an early investor in
Isilon. “It takes 60 gigs of storage data to analyze one drop of blood at
Cedars-Sinai [Medical Center] or Harvard Medical [School] or MD Anderson
[Cancer Center], who are all customers of Isilon.”
While being small and nimble has
its benefits, Patel understands his competitors have advantages in size.
Technical innovation offers a fleeting lead, as companies like IBM and
Hewlett-Packard can rapidly catch up.
“For us,” he says, “the key is to
grow this business quickly, at significant scale, to be able to compete on our
own two feet.”
Isilon’s Wall Street investors now
appear encouraged. Last year, the leadership sweep spooked investors, pushing
the share price below $2, but the stock has since bounced back to more than
$10.
Patel doesn’t anticipate getting
the paternity leave he promised his wife any time soon. The company still
demands lots of attention. When he isn’t at work, he spends his time with his
twin sons. But his hiking boots and snowboard “haven’t seen the light of day
for two years,” he says. The next time Patel hands the reins over to another
CEO, he wants to make sure he’s built a solid foundation for long-term growth.