The Incredible Rise of Datadog: An Entrepreneurial Success Story
On the face of it, Datadog looked like a startup that might never have got off the ground. Initially, the company encountered mountains of skepticism and fundraising difficulties because investors just didn't understand the product. Yet fast forward the clock and nine years after its founding, Datadog was valued at almost $11 billion, had customers all over the globe, and the two co-founders were billionaires. The incredible success of this software-as-a-service (SaaS)-based monitoring platform for cloud applications is due to several factors, not least a winning product, a little bit of luck and a lot of determination.
An Entrepreneurial Success Story Begins
Datadog's story started more than ten years ago. CEO Olivier Pomel and President Alexis Lê-Quôc, both French natives, worked at Wireless Generation, another SaaS company. Alexis was the Director of Operations while Olivier was running the development team. The two became very good friends, but their respective teams did not get along well. There was a vast cultural difference between operations and development, with plenty of mutual distrust and loathing to go around. It was a familiar story everywhere in the enterprise around technology.
So the pair put their heads together to figure out a way of reducing friction between their respective teams. They thought that there must be a better way for people to talk to each other, to make software engineering much more of a team sport than it had ever been before. It turns out they weren't the only ones thinking about this problem; the industry was starting to move that way too.
At around this time, cloud technology was gaining momentum, and there were increasing overlaps in the skills required for operations and software engineering. While there were still many distinctions between the two, they were moving closer together. There was also a greater need for collaborative problem-solving.
This was the very early days of DevOps, a set of practices that brings together two previously separate entities, software development and IT operations. Olivier and Alexis envisioned building a system that would bring the two sides together, and all the data would be available to both. After NewsCorp acquired Wireless Generation, the two friends left full-time employment to create their product.
Datadog was founded in 2010 and was one of the first cloud monitoring solutions. The platform's data collection, monitoring and troubleshooting software tools promote collaborative problem-solving in complex cloud environments. It helps developers and operations teams see their entire infrastructure (i.e., servers, apps, metrics and more) all in one place. According to Olivier, it is like Facebook for DevOps.
Datadog is an inherently technical product. For anyone not well versed in DevOps, which is probably most people, understanding what the entrepreneurial pair were offering the market was challenging, to say the least. This included investors who just didn't get what they were trying to do. They didn't understand the problem nor the solution that Datadog provided. Consequently, they struggled to get financial backing.
Another challenge was their location in New York. While the Big Apple is very startup-friendly, there wasn't much going on with enterprise infrastructure in the city, which made raising money even more difficult, as Olivier explained to one interviewer.
"None of the West Coast investors were listening, and East Coast investors didn't understand the infrastructure space well enough to take risks," explained Olivier. And when they did chat with a West Coast VC, they "thought it was a form of mental impairment to start an infrastructure startup in New York."
They were surviving on credit cards and did not know whether their fledgling enterprise would make it. As Olivier put it in a fireside chat at Data Driven NYC in January this year: "we were in a "not funded, oh my god, how are we going to survive mode" for about a year." However, adversity proved to be an asset.
Being cash strapped forced them to build an efficient business. It also pushed them to connect with customers much earlier and more often than they might otherwise have done.
Datadog was launched to general availability in 2012, and since then, success has been nothing short of dizzying. Part of this, at least initially, was due to timing and luck, launching at just the right time.
"We had exactly the right product at the right time," Pomel told TechCrunch, "and a lot of it was luck. It's healthy to recognize that not everything comes from your genius, because what works once doesn't always work a second time."
Connecting with Customers
At the time of the launch, DevOps and cloud migration were two huge trends that Datadog plugged into and that people wanted to know more about. There was an insatiable hunger for information because everyone was new and wanted to learn. So to pique interest and jumpstart their customer base, Datadog invested in content marketing.
Now engineers are not necessarily the greatest writers, so they enlisted marketers to create blogs and articles. The problem with that was they lacked the specialist knowledge, so in the end, Datadog hired full-time engineers with an interest in journalism. They started writing and publishing information on these topics, garnering a following and establishing the company as an authority.
However, the most effective tactic to attract paying customers was attending community conferences. They rented the largest booths they could find and put in a lot of time rehearsing their product demos, conveying the maximum amount of relevant information with clarity in the minimum amount of time. Word spread, and the company was starting to get a lot of inbound sales traffic. The first customers were small and medium-sized businesses, as larger enterprises were not yet migrating into the cloud.
In November 2012, Datadog received its first significant round of funding, a $6.2 million injection that was used to expand its development, sales and marketing operations for its rapidly growing customer base.
As large-scale businesses started to move into the cloud, Datadog was ready to capitalize. It started an enterprise sales force to sell the product to companies of 5,000 plus employees. By 2015, it had attracted numerous high-profile customers such as Netflix, Spotify and EA.
For several years, the company had one product only and was doing just infrastructure monitoring. But through acquisitions, it diversified its offerings and moved into application performance monitoring where it expanded rapidly.
Datadog was growing fast and tripled its revenue over the first four years. Most of its customers were US-based, but ambitious expansion plans saw it expand to Europe, Asia and South America.
By 2017 Datadog had more than 4,000 paying customers across the world. Annual recurring revenues were north of $100 million, and more than 600 employees were spread across its worldwide offices. In 2018, revenue had grown to $198.1 million.
During its rapid ascent, operating costs were not exceptionally high, and operating losses were not excessive. One of the reasons it was able to grow without losing vast sums of money was its high net retention. During the first half of 2019, it was at 146%. Net retention tracks the extra amounts existing customers are willing to spend on a company's products each year.
Datadog was also winning with venture capitalists. By 2017 the SaaS company had raised five rounds of funding, totaling $147.9 million.
In less than a decade, Datadog grew from a dream and drawing board idea to a multinational behemoth with annual revenues of approximately $350 million, more than 1,400 employees in over 30 global locations and nearly 12,000 customers.
During the early days when the going was tough with funding problems, Olivier and Alexis persevered, focusing their attention on building a great product for their customers. The fruits of their hard work are paying off, but they are not done yet. They look set to continue their stellar growth into the future as more potential customers move from legacy systems (outdated computing software/hardware) to the cloud. Watch this space.
From drawing board to a global multibillion-dollar behemoth in less than ten years - the incredible entrepreneurial success story of Datadog. Click here to discover how co-founders Olivier Pomel and Alexis Lê-Quôc did it.