Russ: This is the Businessmakers Show heard here and online at thebusinessmakers.com. And its guest time on the show. I'm very pleased to have with me in the studio now the co-founder, president, and CEO of CyrusOne David Ferdman. David, welcome to the Businessmakers show.

David: Thanks, Russ. Thanks for having me today.

Russ: You bet. Well, let's start by you telling us about CyrusOne.

David: CyrusOne is an entrepreneurial story. We are a co-location data center provider. We operate seven data center locations that have about 480,000 square feet. We sell co-locations to large commercial enterprises where people move their IT production environments into our data centers. We build the most redundant and the highest power density data centers in North America. The company has been growing at a fairly good rate over the last nine years.

Russ: You said it's an entrepreneur company. You were there and played a key role, perhaps the key role since you're also CEO, of starting the thing up. Right?

David: It's been a team effort. But I certainly have been in this position for a long time, since we started. It's been a lot of fun.

Russ: What year was that that you started?

David: We actually started the business in 2000, but we were able to launch it in 2001. So construction took about six months, getting the team together took about six months. So it took about a year to really get it off the ground and have something to sell.

Russ: Okay. Tell us what you did before CyrusOne.

David: I was in the long distance business, telephone business. The guys that bothered you at home were not me and my company. We actually had a company about 500 people. We were nationwide. We were a public company. We were another entrepreneurial start-up. I was a co-founder with some other people. The business existed for about eight years before it was ultimately sold and integrated into a larger company. That business was exclusively a voice long distance business dedicated to enterprises, companies, no residential, not the guys who call you at home, not the guys that they're sending you e-mails to try to get you to switch without any authorization. Always a very direct person-to-person type sale to corporations.

Russ: Okay. And you were a co-founder there as well. Right?

David: That's correct.

Russ: Have you always been doing this entrepreneurial thing? Did you do one before that one as well?

David: Before that, I was actually having fun. I was selling wine in Chicago and Kansas City, and just having a good time before I figured out what I really wanted to do.

Russ: Okay. Well, that's interesting. Wine to long distance to serious data center management. That's an interesting path for sure. Wine, I mean, was that like out of college and this looks like fun?

David: It was an extension of college, where they actually paid you to sell some good products. It was a great experience. I learned how to be successful in a very competitive market. It taught me how to package and sell. And ultimately when I first went into this long distance venture, my role within the team was to put together a sales team, a sales force, a sales approach. Although it's a different business, there's a lot of characteristics about selling a competitive product that ultimately helped us out.

Russ: Okay. Cool. So you went from wine to long distance to data center. Does it ever impress you the steps that you've taken from one to the other to the other?

David: When you look back, it's almost like when you ski down a hill. You look back up and you realize how steep the slope was. At the time, it doesn't seem so steep. It's been a lot of fun. And the characteristics of each business have all complemented one another. They're all service businesses. They're all businesses that you've got to have a great product, you've got to have great partners, you've got to have a great team. And, like any entrepreneurial venture, you've got to manage by hit and miss. There's a lot of things that you do that are really smart and there's a lot of things that you do that are really dumb. You really just continue to improve the business and take bigger steps. Although they are very different, there's a lot of similarities.

Russ: Okay. When you go back to like when you were a teenager, what were you like then? I mean, it's kind of an interesting question in my opinion from someone that's where you are today.

David: That's a great question. I moved around a lot. My father was in the non-profit business and we moved when I was high school. I went to high school in St. Louis. Then I went to Kansas University. What kind of life did I have as a teenager? I had a lot of fun. I played some sports. I was really into photography. I just had a lot of good friends and tried to have fun.

Russ: Okay. We're going to be back with more with David Ferdman, co-founder and CEO of CyrusOne, after this. You're listening to the BusinessMakers show, heard here and online at thebusinessmakers.com.

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Russ: This is the BusinessMakers show, heard here and online at thebusinessmakers.com. And continuing on with David Ferdman, co-founder, president, and CEO of CyrusOne. Well, David, I know from talking with other data center people that there's a lot of them that focus on the number of emerging small businesses that are showing up these days. But CyrusOne focuses pretty much on the other end of the spectrum. Right?

David: That's true. We focus on the large enterprise. We do have quite a few smaller businesses that come to us through resellers. But we focus our efforts on the largest enterprises in the world, including six of the top ten global enterprises and many of the Fortune 500. CyrusOne's expertise around large data center footprints, allowing us to really take care of huge companies and moving their entire IT environments into our buildings. And that includes their servers.

Russ: Okay. Six of the top ten global enterprises are customers of CyrusOne?

David: That is correct.

Russ: That's pretty impressive. Was that the original vision, to go after that part of the market?

David: You know, the original vision was to attack large enterprises and mid-size enterprises. And what happened is, is we began to evolve and be successful with some of the larger enterprises. We realized that we had a really profound solution for the largest companies. And so we now focus our efforts on convincing the largest companies to move their live technology into our buildings, instead of building their own data centers.

Russ: Okay. Well, I am aware that you were one of the first in the business to really sort of guarantee 100 percent up-time, which I'm certain would be of major interest to these corporations, as it would small businesses as well. But how do you that?

David: We certainly didn't invent the data center. I mean, the data center has existed for many, many, many years. And large entities like, you know, outsourcers and IBM and other telephone companies have had data centers. So, as an entrepreneurial company coming into a large market with no brand, we had to build simply a better product. We had to build more generator power, more air conditioning, more UPS power, more telecos. And we had to have a much better design and a much better mousetrap, if you will, in order to compete with the existing products that were out there. So we built a better product; we gave a better guarantee. And we attracted some better entities.

Russ: So it's this redundancy that makes you comfortable in taking the risk and guaranteeing 100 percent up-time.

David: It is the redundancy, because you can't engineer around mechanical and electrical problems. I mean, you buy gear that are going to be over time things that fail. And when they fail, you've got to have extra components that make up for that. That's how we've engineered and that's how we guarantee, and that's how we've been ultimately successful and give our customers great peace of mind.

Russ: But doesn't that also increase your expenses too?

David: You know, it does. And it certainly costs more money to build more redundancy. But at the end of the day, that's what gives our customers the peace of mind to sign a longer contract with us and to move more critical gear into our facilities.

Russ: Okay. I mentioned this a while ago, you gave me a tour last week. And it was really impressive. Now I also know in doing research too, I always hear this term of high density computing. What is that?

David: Well, high density computing really refers to the amount of power that you need. If you step back and think about just technology in general, things are getting smaller. What you can do with a server and a blade server today it used to take literally the amount of space of a refrigerator, even ten years ago. So as things get smaller, you compact a lot more computing power into a smaller, smaller, and smaller square footage. You ultimately need a lot more power and then therefore a lot more air conditioning to take care of those new technologies. So blade servers that you hear about today require a lot more power and a lot more air conditioning to support. If you stack blade server after blade server after blade server after blade server through a large room, you ultimately need a tremendous amount of more power to support that. And we build data centers to support those types of technologies.

Russ: Okay. And you consider CyrusOne, to be a leader in doing that?

David: We are a leader. And part of the reason why we've learned and been able to be good at being a leader in this area is because energy companies are very large consumers of power dense computing. We've been able to have the benefit of supporting a lot of those companies and learning a lot about high density computing.

Russ: You know, I'm always struck when I hear you talk and see what you write about. It seems to me that your competitors could just read this and go, "Oh. Well, that's what we need to do." Why didn't that happen?

David: There are companies in the industry that are looking at putting more power in. And as power densities deepen and get more and more intense, some of the companies in the industry have built some power densities into their data center. But, at the end of the day, it is a capital decision. And it does cost a lot more money. And to put a new capital model in front of your investors is typically not something that just happens overnight. I think over time. That's a good differentiator up front, but over time, that's really not a long-term differentiator for us.

Russ: Okay. Well, I know that your data centers are today just in Texas. Correct?

David: That's correct.

Russ: But your customers are all over the planet obviously.

David: Customers are all over the planet. We've been able to recruit a number of companies internationally to actually host their live servers in Texas. The security, the pricing, and the redundancy that we have here in Texas is unique. And I think we're going to continue to have success with that.

Russ: Okay. So therefore you don't need to go put a data center in Europe or in Canada or anywhere else. There's just no benefit.

David: There's great benefit. And we are evaluating, looking at going into those markets. But we've been so busy, if you will, with growth that to keep our focus and keep our discipline, we've stayed in our territory for now.

Russ: Okay. When you mentioned growth I think that you've had an incredible track record quarter to quarter in growth. Is that accurate?

David: You know. Knock on wood, we've been successful. Our compounded annual growth rate over the last five years is 60 percent. The revenue is 96 percent on our cash flow. And the tight credit markets are actually very, very beneficial for us, as people are either going to spend a lot of capital internally on building a data center or move it holistically to us. And we've been able to get people to make that change over the last couple of years.

Russ: Okay. We're talking with David Ferdman, the president, CEO, and co-founder of CyrusOne. And we're going to be back with more with him after this. You're listening to the BusinessMakers show, heard here and online at thebusinessmakers.com.

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Russ: This is the BusinessMakers show, heard here and online at thebusinessmakers.com. And continuing on with the co-founder, president, and CEO of CyrusOne, David Ferdman. Well, David, I'm sure that our listeners are really curious about this major step, from being in the long distance business to being in this very serious data center business. What was the idea trigger that made you make that jump? What was that?

David: Well, it's a great question. Thanks for asking it. After I left the long distance business, I really was looking for something to do. And it occurred to me there's a number of things I really liked about the long distance business. And there's probably a longer list of things that I didn't like. So I put those down on paper and I decided I was going to make a really distinct list of things to look for and things to avoid. Some of the things I wanted to look for was, in the long distance business, you had the benefit of recurring revenue. And when you sign somebody up, get 12 months of revenue, it continues to grow. What you don't get in the long distance business is you don't get really good predictability, because there's not a long term contract. I made a distinct list that included I wanted recurring revenues, I wanted long-term contracts. Another thing about the long distance business which was not so wonderful is you had a lot of churn. You had people leaving, going from one provider to another. You had employees coming and going. It was really a very high-volume, high-churn type of business. I really didn't want that. I wanted to get to know the employees a lot better. I wanted to hire employees that weren't quite entry level, people that a little bit more experience, a little bit more maturity. So I made a conscious effort to go into a business that had the characteristics, without a lot of churn, both customer churn and employee churn, not really high volume, not an over-abundance of quantity but higher on the quality list.

Russ: Okay. Were there other industries that sort of started competing with this idea to open and build data centers?

David: There were other industries. But at the end of the day, the data center industry really is an extension of the telecom industry. I mean, you know the long distance companies started building lots of data centers to support the entire dotcom boom. I had enough experience with how the networks worked and with how telecom worked and with how all the inter-connectivity worked. I felt the data center issue was much closer to home for me than any of the other industries that I was considering. And so it was much more comfortable for me to leap into something that was really an extension of the industry I was part of prior.

Russ: But, man, isn't it more technical and requiring a higher technically competent team?

David: You know, it's very similar to run a long distance network and to run switches and to inter-connect fiber, and to work with multiple carriers requires a lot of technical people as well. So the skillset isn't necessarily that much more technical. The difference is it's more critical. And so you really need to find employees who have a lot of experience. You can't train people on the team. They need to come in with lots of experience.

Russ: And before I let you go, share with us, David. Let's assume there's an aspiring entrepreneur listening right now and is very intrigued and would love to try to follow a path like you did. What advice would you give an aspiring entrepreneur?

David: Well, I mean the first thing I'd say to anybody is, whoever you go into business with, assuming you have a partner, if you assume you have a partner, you really have to have a lot of trust and comfort with your partners. One of the reasons why I say this is the only that's guaranteed is there's going to be a lot of bumps in the road. And you need to have very patient investors, very patient partners. And there's just got to be a lot of trust. So I would first say that, regardless of what business you go into, trusting and patient partners and investors are the biggest key. Second, I think it's important that anybody who starts a business, make sure that they're really solving a problem.

David: There's a lot of cool ideas out there. But it doesn't mean it's really solving any major problem. If you're not solving a problem, it's going to really be hard to get somebody to spend money. The last advice I'd give somebody, one of the things I really messed up on early on, is if you really feel that somebody on your team isn't perfect for the team, make the decision to make the change sooner rather than later. It's important because it just takes a lot of energy working around people that aren't right for the team. I think that, although we've been successful, it certainly has been a long road. It's been a long, tough road. A lot of mistakes. One of the mistakes was you've got to have the right team. Once you get the right team, it's great. But getting there is not always so simple.

Russ: So I know, you talk about your team all the time. But your message here is that it's tempting once you've built it to try to go with it no matter what. And you're saying, man, if you've got one guy that doesn't know how to carry the ball the way this team operates, get rid of him fast?

David: The faster the better. Because it doesn't change.

Russ: David, I really appreciate you sharing your time and your story with us today.

David: Well, thank you for having me.

Russ: You bet. We've been talking with David Ferdman, the co-founder, president, and CEO of CyrusOne. And you're listening to the BusinessMakers show, heard here, and online, at the businessmakers.com.