Datto CEO: How Hurricane Sandy And Acquisition Offers Tested Our Mettle

Datto today is a 700-person business continuity behemoth worth $1 billion, but the young firm faced its first big test in October 2012 when the winds of Hurricane Sandy came howling.

As wind speeds climbed to 80 miles per hour at Datto's Norwalk, Conn., headquarters, the vendor received calls from more than 500 customers reporting disasters such as power outages and saying they needed to move their operations into the cloud, according to Austin McChord, Datto's founder and CEO.

"People had had disasters here and there, but rarely had it ever been tested at a large scale," McChord said during a keynote address Wednesday at CompTIA ChannelCon 2016 in Hollywood, Fla. "Everybody came into the office in a hurricane to be there for our customers and make sure we were able to spin up all of those machines."

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Things got so frenzied that Datto actually ran out of public IP (internet protocol) addresses for its data center, McChord said. But Datto's 80 employees effective lived in the office for the week after the hurricane, McChord said, to ensure that all of the disaster recovery protocol actually worked and that customers were successfully transitioned out of the cloud back to their primary mode of operation.

"Starting the business, I really had no idea the promise that I was signing up," McChord said. "To actually see that tested and bringing those people back from a disaster was more rewarding that almost anything else I had ever done in my life."

McChord said Datto was "incredibly successful" at keeping businesses large and small in verticals ranging from high-frequency trading to oil delivery up and running during the worst of the storm.

All of Datto's success attracted attention, and McChord soon after received a call from a major security vendor offering to buy Datto for more than $100 million. McChord was taken back by the proposal, and reached out to his lawyer his advice.

"Why are you even thinking about this?" McChord said his lawyer told him. "You could regret this decision for the rest of your life from the beach of your own private island."

But his lawyer's words failed to assuage McChord's doubts, especially since Datto's potential acquirer didn't appear to understand the company's culture and identity, such as why Datto was based in Connecticut.

"They loved our technology, but they couldn't understand our team," McChord said. "I really loved what I was doing, and I couldn't possibly see myself end up with all of this success and my team end up losing their jobs."

So McChord rebuffed the offer, which caused the acquirer to come back with a higher price. But McChord held firm, and Datto remained an independent company.

"Lots of people tell themselves they love what they do at work every day, but rarely is it tested to that extent," McChord said.

Realizing how much Datto was worth, though, prompted McChord to put the internal protocols in place to protect everything the vendor had done and accelerate the company's growth. McChord gave every Datto employee stock options, and expanded the company's board of directors beyond himself to include industry leaders such as the chief technology officer of VMware.

McChord also sold a small slice of Datto to Boston-based venture capital firm General Catalyst in exchange for representation on Datto's board of directors.

And to thank workers for their hard work and dedicated, McChord arranged for each employee to receive a $1,000 cash bonus paid out in stacks of $20 bills. He had trouble getting his bank to agree to give him $250,000 of cash in $20 bills, but once he threatened to move his money to another bank, they agreed.

"They just handed over a duffel bag with that money," McChord said.