June 21, 2012

3 Min Read
Rackspace Founders: How We Built Cloud Castle

By samdizzy

Pat Condon


Who are the founders behind Rackspace, and what has been their vision for the cloud services provider (CSP)? Rackspace (NYSE: RAX) founders Pat Condon and Dirk Elmendorf are sharing their story right now with the Rackspace Partner Leadership Council — which includes VARs, MSPs, digital marketing agencies, cloud integrators and more.

Among the anecdotes:

  • When Rackspace’s first services launched around 1998, the company basically offered three customer support steps: “We rebooted you, reinstalled you and told you to go away,” quipped Elmendorf. “For the first two years our customers hated us.”

  • ISPs told Rackspace that the company could never make money serving customers. So, said Condon, “We didn’t answer the phone.” And if a customer tricked you into getting on the phone, that was terrible outcome, he quipped, referring to business in the 1990s.

  • “That was great because we didn’t want employees and we wanted to keep this small,” said Elmendorf.

  • Rackspace had 10 percent customer churn every month — “it was a barely recurring model,” quipped Elmendorf.

  • Not responding to customers “was a problem because it was pervasive thinking at the company at the time,” said Condon.

  • The company changed when David Bryce got fed up with Rackspace’s terrible support. He coined the term Fanatical Support, pushing the cloud services provider to ensure all employees are empowered to support customers.

  • At first, neither Elmendorf nor Condon necessarily believed in the Fanatical Support mandate. All data center companies back in the late 1990s promoted speeds and feeds rather than support. Nobody would believe the fanatical support message, they thought. Bryce argued that Fanatical Support was simply the right thing to do. Roughly two-thirds of Rackers are now customer-facing employees.

  • Customer churn rate per month dropped dramatically, and retained customers kept buying more and more from Rackspace. And most importantly, those customers told friends and peers about Rackspace.

  • In the recurring revenue model, every transaction does not have to be profitable. Keep the customer and the relationship will become profitable.

  • Wanting to pick up the phone and talk to someone cannot be trained. So, Rackspace started hiring Rackers who want to speak with customers. Every Racker needs to interact with the customer.

  • Rackspace is NOT a technology company. Instead, it’s a customer service company, asserts Elmendorf. “If we were a technology company we would have kept OpenStack. We’re a service company so we freed it.”

  • “We’re boring. We do this thing called hosting. It’s like San Antonio. You can get a lot of food but it all comes in the shape of a taco,” quipped Elmendorf. “We are going to do what we do well.”

Now in the spotlight: Andy Schroepfer, VP of enterprise strategy…

  • Whether it’s private, hybrid or public, Rackspace has you covered, he asserts. “That’s our difference. We have a portfolio. Amazon doesn’t. Microsoft doesn’t. Google doesn’t. APIs are great but they don’t solve for this because they don’t connect.” In stark contrast, OpenStack solves the problem, he asserted.

  • Everyone needs a cloud strategy. But every app has a different path to the cloud.

  • Our goal is to make every app fit in the public cloud.

  • Rackspace is running 80 SaaS apps to support its business.

  • OpenStack is a big area of interest for most of the partners in the room, according to a show of hands.

Check back for more updates every few minutes.

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