466: Reshape Free Products into Revenue-Generators with Ali Ghosdi of Databricks

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2:42Hey Founder fam, welcome back to another episode of The Founder Podcast. Today we're speaking with Ali Godsey, co-founder and CEO of Databricks, A data and AI company valued at$38 billion. Now, Databricks is on a mission to help data teams solve the world's toughest problems. And in our conversation, we discuss how to practically use AI in your business, where it's going, how to use data effectively from the beginning, and so much more. He has a wealth of wisdom. Please welcome to the podcast, Ali Godsey. So Ali, the first question I ask everyone that comes on is, how did you get your job, aka how'd you find yourself doing the work you're doing today well so i'm one of the seven co-founders of databricks but i wasn't the original ceo so i became actually ceo several years into the journey so in 2016 uh so um the original job as a founder of databricks i kind of you know i was a researcher at uc berkeley and um we got to see what silicon valley tech companies were doing and we wanted to take what they were doing and democratize and give it to every other organization out there and we try to do that through research by open sourcing technology, but no one picked up our open source technology.

3:55So we found ourselves in a situation where the only way we could actually get anyone to adopt our software was to actually start our own company. So 2013, we started Databricks and the goal was how do we get this kind of technology, AI and so on in everyone's hands. hmm so you started out as a a scholar at berkeley an academic um can you did you ever think that you would start a a technology company no i actually kind of thought of uh you know the business world as the sort of dark side and i thought you know i'm never gonna join that side really i'm a researcher i do research i publish papers i'm gonna be a professor and uh i'm never going to be in this business world.

4:39So yeah, no, absolutely not. So what happened? Can you talk us through kind of like you went to Silicon Valley as a scholar from Berkeley? Like what happened? Talk us through. Yeah. So, you know, we're there, we're seeing what they're doing. I think we were actually at Facebook and we saw that, you know, they could predict couples breaking up in advance using AI. This is 2009 or 10, right? Long time to go. And our minds were blown. And we said, that this is amazing technology. At that time, no one out there in the industry had anything like that. So we wanted to just open source that kind of technology, do research on it and get it in everyone's hands.

5:19But we built the technology. It was pretty amazing in our opinion, but no one wanted to adopt it. And the thing we kept hearing from organizations was, yeah, this is just some academic prototype that you guys built, some PhD students. We can't rely on that. So sorry. we have to use enterprise-ready software. So we just kept getting rejected. So I think 2013, we finally had it. And we said, you know, we're just going to get in there and see if we can do it ourselves and put some money behind it. So that's kind of how it started. I was still not 100 % sure that I wanted to do this really full-time for real.

5:57But, you know, reluctantly, I was actually part-time. I was the only co-founder that was slightly part-time in the beginning. But, you know, soon we were off to the races. yeah well and why why weren't you a hundred percent on it at the start yeah again i just thought you know this business world and you know it's like i don't know i'm gonna do pure research i'm not gonna do this business stuff and you know the academic research was a lot of fun it was very competitive it was uh we were doing you know research at the international level i thought you know there's so many startups what are the chances that this startup will succeed probably nil uh why spend the time uh so that's kind of how it started but very soon it changed so what happened next yeah i mean you know slowly you know you you get sucked in more and more and uh you know as any founders that are listening to this show know uh it totally consumes you right and it's like it's almost like having your own child it's like you're so you know you care about it so deeply and you want that company to succeed and you start spending your days 24 7 on it So even though I was on paper part-time, I was finding myself doing 100-hour weeks on the startup.

7:04So then I thought to myself, this is silly. I should just admit what I'm doing. And I'm full-time at this company. And I was all in. And I started enjoying it quite a bit as well. So talk to us about how you proved Apache Spark's worth to users and investors in the early days. yeah so early days you know we were saying look this stuff has adoption people are downloading it and we think that ai can change the world fund us and in the very beginning they said look okay wow it seems like there's some traction behind the open source project people are downloading this open source stuff that's great here's some money but next time next time we meet you better show us some revenue okay uh so sure sure sure so we went on and then you know a year goes on and you've spent quite a bit of the money that you raised and you hired a lot of people and they're burning through the cash.

7:58So you go back to raise more money and then they say, okay, well, look, fine, your downloads have increased, but this is the absolutely last time we're going to give you any money just showing us downloads. Okay. We know you have downloads. We want to see revenue. So you go back and then you come back a year later again and you say, Hey, look, look at my download charts. They're amazing. I mean, the number of downloads are through the roof. I said, but where is the revenue? So we kept doing that through 2013, 14, 15. It wasn't really until 16 that we started really showing revenue for real. And we were very stressed ourselves, especially around 2015.

8:32The open source technology really took off. Everybody started downloading it. Everybody started talking about it. So our download charts were amazing. Unfortunately, our revenues were not. But in 2015, though, you know, so we were two, three years in, we had one and a half million dollars of revenue. So the board started putting a lot of pressure on us. Like, we're giving you all this money. You keep saying that there are so many downloads, but where is the revenue? So we were very, very stressed in 2015. and that led us to do some big changes in 16 to sort of figure out how we can actually trigger this, get the revenue going and start scaling the company also from a monetary perspective.

9:14So what did you do? What happened? Well, I mean, first we did the CEO change and then I sort of had nothing to lose. I took three pretty big bets. One big bet was sort of really pivot the company to really focus on large enterprises. Prior to that, we had been really big fans of product-led growth. People come, they swipe their credit cards. We didn't want to hire any salespeople. The software should sell itself. We're big fans of that. And look at Amazon. They did that, and it was amazing. We want to do the same thing, right? But it wasn't going well, and we weren't getting the revenue that we wanted.

9:52So that was one big change. It was like, maybe we should just invest in these enterprise sales folks. So that was one. Second thing we did is this open source model that we had, just pure open source. If you just are open sourcing everything you're doing, then no one's going to pay you anything. In fact, what we were experiencing that we would go around in Silicon Valley and people would come up to us and recognize and say, hey, are you guys the Spark guys? Yeah, we are. Oh, can I take a selfie with you? Yeah, absolutely. Let's take a selfie. We'll take a selfie. And then same people would say, well, okay, can you pay us$100 ,000 for this software?

10:28And you say, no, why would I do that? It's free, you know? So we were getting the selfies, but we were not getting any money. So that's when we started realizing that we probably need to figure out if we're just giving all of it away for free, no one wants this. So let's focus on those enterprise capabilities that really large enterprises need, security, reliability, enterprise support, those kind of things and let's let's start building those as not open source and charge for those and that's when the revenue kind of flywheel started increasing hey founder fam i want to talk to you about something super exciting we're officially partnered with omni send the email marketing and sms platform built specifically for e-commerce founders we've been recommending omni send to founder students for a while now because it just works whether you're launching your first store or you're scaling to seven figures, it really helps you automate your marketing and get real results.

11:22Did you know on average, OmniSend customers make$68 for every$1 they spend, which is an insanely good return on investment. And because you're part of the founder community, you get 50 % off your first three months with the code FOUNDER50. Just head to omnisend.com forward slash founder without the E to get started. All right, now let's jump back into the show. And that's when Effective You guys became Databricks, right? Yeah. Yes. That's when really the shift focused from just being Spark open source to actually. When it came to the transition of you becoming the CEO, how did that come about?

12:04Because you've got seven co-founders. That's a big founding team. Yeah. You know, I mean, in 15, my predecessor was, you know, a professor. I decided he wanted to go back to academia. You know, they give you only this many years to go start a business. So he needed to go back. And I think there was more or less a consensus among the founding team that it should be me. However, I'm not sure the board was convinced that a company that's had huge download success, but not monetary success should have a CEO that has a PhD and is a tech person just like the previous CEO, right? So maybe we should do a search and maybe we should get someone from the outside.

12:51Someone who has experience. Someone who's not a first-time CEO. Someone who's seen the movie before. Maybe someone from the sales and go-to-market site because after all, what is it we're trying to improve? Well, we're trying to improve the go-to-market site. We know you can get the downloads. We want the monies. so there was a search and it was a stressful period, they did interview a lot of professional CEOs and then I think last minute the board kind of took a bet on me, I later found out that they didn't really pay me as a CEO they said look, we'll just have him be the CEO for the next 6 months and we'll see how it goes if it doesn't go well, we'll get a new person and we don't need to pay him like a CEO because he doesn't really deserve it because he's never been CEO so that's kind of how it started, I didn't know that but apparently I was just on a probation you know, 6 month period it crazy so um i know that uh ben horowitz is on the board he's a good friend of yours and uh yeah andreessen horowitz was one of your guys first investors i'd love to hear kind of how you guys met and uh yeah how everything came about there yeah he grew up in berkeley uh we were all researchers at uc berkeley it's a small little college town there And so he knew the companies around there and he had heard that we were onto something and that we wanted to replace the existing sort of de facto software at the time.

14:13So he was the one that actually came in and said, you know, we, you know, I believe in you guys. I won't invest. You know, you have to see at that time, we weren't sure we wanted to really raise a lot of money and create a big company. So I think we told them, give us$200 ,000 seed funding. We'll do some hacking here. and eventually, you know, we'll come back and raise the proper Series A round. But he said, no, no, no, I'm super serious about this. I think you guys can change the world. I'll get on your board. And we said, sure, give us$200 ,000. And he said, I don't know. If I'm, you know, if I'm on your board and I'm spending my whole time, I want significant funding.

14:50And actually the founding team, we felt like, do we really want a person like that? Like, you know, he's not a programmer. Are we going to really take money from him? And we actually kind of decided against it. And we went around the table internally and we said, look, is there a price at which we would take it? And we just kept one-upping each other on what that valuation would be. Remember, we had nothing, right? So it's a company worth nothing. We have nothing. We're just seven guys, right? And I think the first person said, yeah, I mean, if he already values us at, you know, say$20 million and we haven't done anything, well, that's a lot of money.

15:24So maybe we should take it. And the next guy said, no, no, I wouldn't take it for that. You know, he would have to value us$30 million. And the number kept going up. And I think last person was really bold. And they said something like$35 million. So we kind of decided, no, we're not going to take any money from him. And then that day where the decision was made, he came into our office. He was actually 40 minutes late. There's a lot of traffic, apparently. And we had dressed up that day. We had put on shirts, you know, no more shorts and, you know, flip flops. And he came in and we all pretended we were working hard there.

15:55And he came in and he said, look, I'm not going to negotiate with you guys. I'm not going to haggle. going to make your final best offer. I'm essentially going to value your company at$50 million. Take it or leave it. And I want an answer now. And we jumped on it to me. Absolutely. We're ready to sign. So that's how we got off. And that was a big valuation. It was a lot of money also, $14 million. So the pressure was on to live up to those valuations immediately. So that's how it got started. Yeah. And why do you think that this happened, that he gave you an offer you couldn't refuse? I think at that early stages of Andreessen Horowitz, they were not yet a name brand firm.

16:38I mean, they were, we knew about them, but they weren't this huge firm that they are now. Everybody knows about Andreessen Horowitz and so on. So I think they were being pretty aggressive in the early days with coming in with big valuations and taking the deal off the table quickly. And we were one of those that they came in, right? So they knew that that's the way to win the deals. And they got quite a few good deals. Today, I think things are different, right? It's a really reputable firm. It's one of the top, I would say, VC firms here in Silicon Valley. So things have shifted. So those early days, they would make these sort of outsized offers.

17:11And with a founding team of seven, literally seven co-founders, I'm curious to hear your take around the disadvantages and advantages. Yeah, that's a great question. I think there are huge advantages and huge disadvantages. I think what people might find surprising if they come to a company like Databricks is that they might find that there are seven co-founders and they kind of challenge each other in a way that no one else does in a normal company. so um the way the usually in an organization you have a ceo and then when the ceo says something look i've kind of decided i want to do things this way people kind of get in line when you have seven co-founders they say i think that's a bad idea i don't agree with that you know and people sometimes find that shocking and it's really really annoying being a ceo and you've said what you want to do and then you have this co-founder that's just sitting there and saying yeah i think you're just completely blatantly wrong on this one.

18:11Doesn't happen with any other employees, only happens with the co-founders. But I think it's good also because it creates checks and balances on the CEO. So if I'm about to do something that's really crazy and it's really bad for the company, they'll make sure that they push back and they challenge me and I'll kind of get back in line. On the other hand, the frustrating part for me is, you know, on decisions where I'm completely convinced that I'm 100 % right and I've done my thinking and gone through it, I might have to spend quite a bit of time convincing them that this is a good idea. Trust me on this one.

18:44And I'm kind of going to use the CEO card here. I don't know you don't respect my CEO card here, but I'm going to use it anyway. And then usually they'll kind of, you know, after some complaining, get in line. So that dynamic is different. But we're also really, really good friends. And I think that happens in these companies when you found them together and you went through all the different stages. We've kind of been through a journey together that really no one else, no other friendships or no one else has gone through, right? We worked day and night and our companies and everything we believed in almost died 10 deaths over the years, right?

19:21And so you become a really tight-knit group that get to know each other. And we also saw each other sort of grow up over the last 10 years. People formed families, kids, so on. So it's also really close friendship and that's really valuable because I think they always say that the CEO job is the loneliest job in the world. But I think that I actually never was that lonely at Databricks because I had my co-founders. I could always call them up and tell them what's going on and say, look, I think I screwed up and I think the company is going to be over by next week. And I've said, no, no, no, what happened?

19:52And then you tell them, it's not so bad and let's strategize together. So that's a huge advantage for the CEO that you have though. So while they're challenging you, you also have friends and co-founders that are with you even when things are not going well. They're not going to abandon you and say, well, okay, if that's not going so well, then maybe I'm quitting here and doing another firm here. So that's a huge advantage, knowing that you have that. So for me, in the end of the day, it's a huge net positive. And I don't think Databricks wouldn't have gone to the place it is today without those founders.

20:21And last thing I will say is, founders, they kind of are owners, right? They don't care what function or role they have in the company. They don't care, you know, okay, you're a co-founder of mine. I want you to focus on marketing. Sure, I'll do marketing for you. But if they don't like something that's going on in sales or product or engineering or in HR, they're going to speak up and say, hey, this doesn't make any sense. Can we make this work? So you get that from seven people. That's super, super powerful, right? Otherwise, organizations have a tendency to become a little bit introspective, just focusing on their function.

20:55Marketing focuses only on optimizing the marketing. And sales optimizes only sales. And engineering only optimizes engineering. And then you have the CEO that's trying to shepherd all of it. But in a company, we have seven co-founders. You have kind of seven people that are making sure that they shepherd everything and everything is on track. So those are the advantages and some of the disadvantages. Overall, I think if you can't find a group of friends that you really get along with and you can trust, it's a huge advantage. Yeah, thank you for sharing. And you said that there was many times where Databricks almost failed.

21:29Can you tell some of those stories? Yeah, I mean, look, it's specifically when Spark really took off as an open source project. And it was sort of news articles after news articles every day about how Apache Spark is amazing. You can do all these things with it. And because it was open sourced, our competitors started adopting it. And they started also, it's open source, right? So they also started saying, okay, this is great. We will also have that software. And what then happened is that they were actually making much more revenue on our innovations than we were making. And in particular, because those companies were bigger, they had bigger scale, they had thousands of employees.

22:12if you went around and asked people, hey, have you heard of Apache Spark? They would say, yeah, it's great. I remember, in fact, I was in a meeting in New York and we came in and we said, hey, so we're here to talk to you. We're the company. Have you heard of Spark? And the customer said, yeah, I heard of it. It's great technology. IBM built it. Those guys are great. And we said, well, actually, we kind of built it. And I said, well, the IBM guys have done really, really good work on Spark too. And what do you say, right? It's a customer. You don't want to correct them. So that's the challenge, right?

22:46So the megaphone was with all these big vendors that had adopted Spark and not us. And the pressure was on from the board of you're not monetizing it. It's great that you're getting the downloads. Everybody else is getting the revenue. and every week we would hear these reports about how our competitors were setting another record. You know, Slow & Slow now made$100 million of revenue on your technology. How much have you made? You know, oh,$500 ,000. That's great for you, but that's less than the local restaurant is making. That was one quote from a board meeting. So we felt the pressure, right?

23:20It's like, basically, you guys are as smart when it comes to business as the local restaurant owner here, you know so we felt that pressure and it was unclear and I think in my mind at least I certainly at some point felt like look we had huge impact in the world with our technology that's great in itself maybe we're not business guys maybe we're not we just don't know this whole how you monetize it and that we don't that's not our thing that's okay you know you win some you lose some so I certainly had that feeling in 14 and 15 to some extent and And I would also say before the inflection point where we saw really the revenue started growing, in general, I think many of us had this view that the company probably will not succeed.

24:06Like if we all had to, yes, we would have said, yeah, probably it won't, but we're going to give it our everything and see how far we can push it. And hopefully someone can buy it. And I remember from the early days, we were hoping maybe someday someone will buy this company for, say,$200 million. dollars we thought that would be a great outcome for us if we could ever reach sort of that kind of level uh of acquisition uh so that's the journey we went through but i think around 2017 was when i started realizing that no there is there is real momentum behind this and the sort of revenue charts started hockey sticking and we knew that there's something here we might have a tiger bite sale yeah well it's crazy to think like uh you guys are now valued at over 38 billion.

24:51And you would have been happy with a$200 million valuation. Is that like, is it like crazy to think of now? Yeah, I mean, it's unbelievable, right? I mean, I'm saying we would have been very happy with 200 million when we started the company. I mean, we actually had an exercise when we were on the table and we asked ourselves, like, you know, what would be a great outcome for us? And I think the numbers were ballpark 200 million. Some said 100, some said 150, some said 250. But that's how we were thinking about it. Um, so the, for sure it's, uh, it's been shocking, but it's also taken 10 years.

25:25So you also a little bit get used to it. So, you know, it takes you 10 years to sort of kind of, uh, get used to this sort of scale and, uh, how far you've come. And then, you know, what I would say is at any given time, even when the company is the scale that it is now, even close to 5 ,500 employees, um, you know, cross, you know, billion dollar revenue and so on. There's always the threat. It's a competitive world, especially in the space we are in, but really in any field you're in. And anything can happen to any company. So you always feel that pressure. There's been lots and lots of great companies that have been created in the history of mankind that became huge and had massive impact.

26:06And today they're just a small shadow of what they used to be back in the day. So the competitive pressure is always on. And the more successful you are, the more target on your back you have. The more people are saying, well, you know, it seems like those guys can make money doing that. Let me do the same thing they're doing and one up them. Hey guys, I hope you're enjoying this episode and learning a ton. As you know, in this series, we interview some of the greatest founders of our generation to find out how they did it. However, if you're thinking of starting your own business and you want to hear from some incredible stories from everyday people like you or I who are actually in the trenches, only been building their business for maybe one year or two years, like they're building right now and they're really in the early stages, but they're getting success.

26:52You should come and check out our new podcast from Zero to Founder hosted by our community manager, Molly Flynn. These are in the trenches stories from our very own successful students that have gone through some of our programs. People just like you who are deep within the process of building their very own successful business. These are the founders of tomorrow. You can find the From Zero to Founder podcast on all platforms. And remember, it's founder without the E. All right, now let's jump in the show. Lots to talk about. I want to talk about AI and data because it's a massive conversation.

27:29But before I do, I'm just curious to hear your take around your story around becoming the CEO and not particularly in the early days, kind of that was the ambition. So what do you believe from your take is the difference between a professional CEO and a founding CEO? Great question. I think, especially for startups, early stage startups, product is so important to everything you do. And I just think it's extremely hard for a professional CEO that comes in from outside to really understand that product vision and understand that space that you're in. Typically, professional CEOs come from the go-to-market side of the house.