When Growing The Business Means Firing Your Customers

CloudLock CEO Gil Zimmermann saw that his employees had stopped eating their own dogfood, so he scrapped the business model and pivoted to an even better one. Here's how.

The first hint that Aprigo CEO Gil Zimmermann needed to rethink his data security business was that his company had stopped using its own product. Aprigo’s employees were no longer storing documents locally, and so the company didn’t need on-site data protection—the primary service it sold. They were instead using its cloud-based document-monitoring counterpart, Ninja for Google Docs.

This realization spurred Zimmermann to take an informal poll of his customers. Forced to choose, he asked, would they want to monitor their docs on-site or in the cloud? Every one of them—even those that had never held a file remotely—picked the cloud. They saw web-based file sharing as a “game changer” that would make collaboration with outside organizations easier and data storage less expensive. But not all of them planned to transfer their files right away. Security concerns, they said, were their biggest roadblock.

That's when the light-bulb blinked on, Zimmerman told Fast Company. The market for web-based data monitoring was growing. And he could make cloud products more sophisticated, better able to serve bigger companies, than those he developed for on-site use. Cloud-based technology could be made scalable with far fewer resources than on premise—with just over 30 employees he could build a service that would be useful to both large enterprises and small businesses. And unlike the more static on premise environments, a cloud-based system could be designed to let managers make on the fly security policy decisions.

So, in 2010, two years after launching a business that had consistently met its financial targets, Zimmermann saw the chance to grow even faster. Aprigo pivoted into CloudLock, and began operating exclusively on Google Apps. The company “fired” those customers who held data locally, refunding hundreds of thousands of dollars.

The move was well timed. More than 5 million companies use Google Apps today, making it the leading web-based office productivity software. That's up from 3 million companies in September 2010, and that growth is set to continue: Forrester Research, a Cambridge, Massachusetts-based technology consultancy, estimated in an April 2011 paper that the worldwide market for cloud computing of all types will increase by almost five-fold to $241 billion by 2020. Federal government agencies including the General Services Administration and National Oceanic and Atmospheric Administration already trust it with their email.

As businesses migrate to the cloud, they’ll need more security. That may seem counter-intuitive—by Zimmermann’s estimation, it’s harder to hack Google data centers than any others outside of off-grid military intelligence sites. But data still needs to be monitored and protected.

Zimmermann likens the risks to keeping cash at the bank: robbers are far less likely to get at it than if you keep it in your desk at work, but if you give everyone at your company your ATM card’s pin number, your money’s not likely to be in your account for long. Likewise, companies needed a way to make sure that they were properly setting permissions, only giving people who needed access to information that access.

And that’s exactly what CloudLock lets them do. Authorized employees can see, at a glance, all documents in their domain, classified by who has access: internal employees, partner companies, or the public. They can organize documents by file type or keyword and change permissions in bulk or in individual files. And it’s content aware—even if a document isn’t password protected, the system is continually scanning and warning both users and administrators when documents look like they’re being improperly shared, a service that would be impracticable outside the cloud.

Those features have helped CloudLock capture some big clients. The company now has 300 customers, said Zimmermann, brings in millions of dollars in revenue each quarter, and is earning more in a month than it used to in almost half a year. It’s doubling its number of end users quarterly and has more than one million today. Zimmermann won’t name his larger customers, who don’t want to be cited publicly to avoid calling attention to their security procedures, but he says they include federal government organizations with more than 20,000 end users, retail companies with over 50,000 users, and cell phone and hard goods manufacturers with more than 10,000 users each.

CloudLock raised $8.7 million in venture funding in March from a group led by Cedar Capital and Ascent Venture Partners, in part to expand its services beyond Google Apps into other cloud environments such as SalesForce and Box.net. Zimmermann declined to say precisely when they plan to launch in another space, but added, “Stay tuned. We operate very quickly.”

Switching business models, especially when it involved getting rid of dozens of customers to kill a business that was meeting its goals, wasn’t easy. But, he said, pivoting worked. “You should be continuously looking to what the market is telling you and making adjustments,” he said. “You should be pivoting all the time.”

Simone Baribeau is a freelance writer based in Miami, Florida. She has written for Bloomberg News, the Financial Times and the business sections of the Washington Post and the Christian Science Monitor. Email her at simonebaribeau@gmail.com.

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