Xiotech hopes to change the way computer information is stored with a new technology developed by a Colorado Springs-based team of engineers and computer scientists.
The company has made the technology — employing a line of computer servers — its primary focus, and moved its headquarters in January to the Springs from the Minneapolis area, where it was founded.
A new management team that took over in late 2009 is trying to land up to $30 million in venture capital by midyear to expand Xiotech’s marketing staff in an effort to double revenue within three years and position the company to go public next year. That expansion would bring the company’s local staff to about 100.
Xiotech’s arrival comes at a time when the technology industry in Colorado Springs is struggling, and local business and civic leaders are searching for ways to foster its growth. No local startup company has attracted venture capital in more than two years, thousands of local jobs in the industry have disappeared in the past decade through layoffs, corporate restructuring and business failures, and the ambitious growth plans of several other local technology startups haven’t been fulfilled.
Many members of Xiotech’s engineering team began their careers at Digital Equipment in the Springs, where they helped develop many of Digital’s early disk drives. After two mergers, Digital veteran Steve Sicola moved the team to disk-drive manufacturer Seagate Technology, which later sold the operation to Xiotech after spending $100 million and five years developing the technology.
The 1½-year-old management team at Xiotech said it believes the technology the team developed has positioned the company for rapid growth.
“Most companies in the (information) storage business rarely get the chance to wipe the slate clean. Typically they will add new features and more capabilities to their existing product line. We had no design assumptions or rules going into this,” said Xiotech Chief
Marketing Officer Brian Reagan, who along with CEO Alan Atkinson and Chief Strategy Officer Jim McDonald joined the company in late 2009. “We are positioning ourselves for a lot of growth in a short period of time.”
The new team has retooled Xiotech around what it calls its Intelligent Storage Element line. That line made up just 10 percent of the company’s revenue in 2008 and brought in 85 percent last year. The team also completed development of the next Intelligent Storage Element line generation, which combines traditional disk drives with data storage on a semiconductor, and got the next-generation line on the market in January.
“Using solid state (semiconductor-based) storage in conjunction with traditional disk drives means you no longer have to compromise between performance and capacity,” said David Gustavsson, Xiotech’s vice president of engineering, who earned a master’s degree in computer science at the University of Colorado at Colorado Springs. He became part of the engineering team at Seagate.
Xiotech eliminated the trade-off between performance and capacity through software that learns what performance level is required for the task it is performing — and over time tries to improve that performance, Reagan said. The new-generation line delivers 15 to 20 times the performance of a typical storage system in a data center at a price 20 to 50 percent less than competitors deliver, allowing data centers to store more in less space, he said.
The team also moved Xiotech’s corporate headquarters in January to join Sicola and his team at the $25 million lab. Atkinson and several other top executives who had commuted to Minnesota now instead commute to the Springs.
Atkinson and George Symons, who joined Xiotech in June as chief operating officer, have been trying to land up to $30 million in venture capital since December to double the size of Xiotech’s marketing team by year’s end, boosting Xiotech’s local work force to 100. By expanding the marketing staff, Xiotech hopes to double sales to $200 million within three years, positioning the company to be taken public by mid-2012, Reagan said.
“Our sales right now are limited by the number of people we are able to talk to,” said McDonald, who added that the company has two orders for every unit in the new line that will be manufactured this quarter, a shortage that will be resolved by midyear. The line is manufactured elsewhere by Sanmina-SCI. “If we can show that we can grow top-line revenue quickly, we will be attractive to investors because we have a ground-breaking technology with five years of history behind it.”
Marc Ashworth, information technology director for Patients First Health Care, a St. Louis-area physician group with 20 locations and 82 doctors, said the group uses one of Xiotech’s first-generation Intelligent Storage Element systems for its data storage needs.
“We have had it for almost two years and there have been no problems with the product at all, and it far exceeds the performance expectations. It is unbelievable how fast it is and the ease of use of this product is very intuitive,” Ashworth said.
Randy Kerns of Evaluator Group, a Boulder-based analysis firm for the storage industry, called Xiotech’s technology “novel and unique” and said the company “has carved out a segment of the market where there is a lot of opportunity with customers who need both high reliability and high performance. They’ve got all the pieces in place. They just need the business development and sales to make it successful.”
Noemi Greyzdorf, research manager for Boston area-based technology research giant IDC, said Xiotech has “a significant opportunity” in its niche of the storage industry, but added that the company needs to develop more partnerships with other storage-industry vendors to integrate its products into larger systems that include products of several manufacturers. She said the new hybrid line “is a fantastic building block” for such systems.
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A HISTORY OF XIOTECH
The company was started near Minneapolis in 1995 by Phil Soran and Larry Aszmann, two neighbors with an affinity for technology, and John Guider, Aszmann’s former boss, to develop and sell disk-drive systems to small businesses to store vast amounts of information.
The trio, working out of Soran’s basement, came up with the idea of a “storage hub” and asked 10 technology industry gurus for feedback. Those conversations helped land Xiotech its first $1 million investment. The company grew quickly by raising $38 million from nine investors and venture capital firms to get its first product – a 5-foot tall black box filled with disk drives – on the market in 1998. Most of Xiotech’s customers were small to mid-sized organizations in health care or education or were government agencies.
Sales boomed, reaching $100 million at the height of the technology boom 2000, when it was acquired for $360 million by Seagate Technology Inc. as part of Seagate’s plan to expand into storage systems. A year after the sale, all three cofounders left Xiotech and started Compellent Technologies Inc. to develop data-storage systems. That prompted a volley of now-settled lawsuits between Xiotech and Compellent over trade secrets.
Not long after Seagate acquired it, Xiotech and most the rest of the technology industry were battered by a brutal downturn. In 2002, Xiotech laid off nearly a fourth of its 400 employees and decided to sell through companies that bundle a group of products and sell them to customers. A few months later, Seagate wrote off 90 percent of its investment in Xiotech and sold 80 percent of the company to Westport, Conn.-based Oak Investment Partners for $8 million.
Oak Investment Partners brought in former Sequent Computer Systems founder and CEO Casey Powell in 2003 to turn around Xiotech. He became the fourth CEO in three years of a company that lost more than $100 million while Seagate owned it. Powell slashed costs, laying off 75 and closing a research center as part of a strategy to move away from proprietary hardware it designed to off-the-shelf components.
About that same time, a group of 44 engineers who had spent most of their careers in Colorado Springs at Digital Equipment Corp. and the companies that later acquired it were looking for a new home after Hewlett-Packard Co. became the latest owner of Digital’s operations. The team, called the Advanced Storage Architecture Group and led by Digital veteran Steve Sicola, found a home with Seagate to develop faster and more reliable drives.
The team grew to 100 as Seagate invested more than $100 million over 5½ years, including a $25 million lab in northern Colorado Springs. They came up with a storage system, called the Intelligent Storage Element, that can repair itself. It includes spare drives that can be activated automatically as soon as a problem with one of the other drives is detected.
Seagate determined the technology “no longer align(ed) with Seagate’s strategy” in 2007 and looked for a buyer for the Advanced Storage Architecture Group. Xiotech. which had been working with Seagate since 2005 to develop the technology and wanted to buy it, paid $13 million for the operation in late 2007, secured $40 million in financing to complete development and was able to get the new drives on the market less than six months later.
While the Intelligent Storage Element line sold well – 1,500 units in its first year – Sicola, Xiotech’s chief technology officer, believed the line wasn’t getting the attention from management it deserved. He went to Xiotech’s board and proposed the company be refocused on the new line with a new management team that had storage industry expertise – Powell came out of the high-performance computing industry.
Two weeks before Alan Atkinson, a top executive with storage giant EMC Corp., was hired in 2009 as CEO, the company landed $10 million in new funding plus a $10 million line of credit to expand the Intelligent Storage Element line.