While the typical birthplace of a new-economy startup has morphed from a Silicon Valley garage to a Wi-Fi-geared coffee shop, some technology companies still start the pre-garage-era way: over a round of golf in a Texas country club.

And so it was, on a hot summer day in 2011 on the green grass of the Northwood Club, established in Dallas in 1946, Compass Datacenters was born.

In a way, Northwood is an appropriate birthplace for what is essentially a real-estate company providing a highly specialized real estate product: buildings where the new economy’s drivers live and get the power that keeps them running.

Compass wants to take the US data center market by storm, and is leaning on one simple idea: build data centers that address the needs of your customers first, addressing your own needs second. And Chris Crosby – one of the two co-founders of Compass – believes he knows what the customers want.

Over the past eight years, Crosby helped build and grow the world’s largest wholesale data center company, Digital Realty Trust (DRT). He was one of DRT’s original founders, and as such, saw the company grow from a subset of a private-equity firm’s asset portfolio to a global publicly traded giant, turning over more than US$1bn a year.

Things you hear on a golf course

In February 2011, DRT was well on its way to deliver record revenue for the year and Crosby – having just helped expand the company into Asia – announced his resignation. He left for a number of reasons, not the least of which was a desire for change.

The company was close to $1bn in revenue and Crosby had already accomplished the big goals he had set out to accomplish, he says.

He also thinks he is better at growing a company than at running an already gigantic one. “I’m probably not the best manager for a company that size,” he says, referring to DRT.

Crosby left that April and, aside from taking a few phone calls with friends in the industry, had almost completely disconnected himself from business. “Honestly, I didn’t think I would [start another company] when I left Digital Realty Trust,” he says. “It was not, by any stretch, the intent.”

The idea for Compass, he recalls, came after he spotted what he thought was a good opportunity. Part of it was learning what Chris Curtis, one of his fellow Northwood Club members, did for a living. A long-time developer of small high-security buildings for the federal government, Curtis knew how to make the economics of small but complex development projects work.

“He’s done them all over the country,” Crosby says. The expertise in building small buildings cost effectively is a rare skill set in the data center industry, where the orthodox thinking is you must build big to make the business end of a project work.

The Compass model

Compass differentiates itself by specializing in small data centers delivered fast and priced competitively. The facilities are modular, but unlike the traditional modular model, there is no large building or high-capacity electrical plant whose utilization rate grows as more and more data-floor modules, or pods, get added. A Compass data center is a series of four modules, all designed together to support one 1-1.2MW data center with 2N power distribution.

The data module – called CompassPod – is a 10,000-sq-ft data room supported by a power module, a cooling module and a support-space module. The CompassSupport module is the only thing a customer can chose to use for multiple CompassPods. If they want to expand data center capacity, they have to add more power and cooling modules.

This is where Compass differentiates from the majority of data center providers. Conventional wisdom says you need a large building and large power or mechanical plant to realize economies of scale and make the economics work. Compass is challenging this.

Curtis has never built a data center in his life. He is a Compass co-founder and serves as SVP of development and acquisitions. Crosby says he brings a fresh set of eyes to an industry that, regardless of its comparatively young age, tends to be set in its ways.

A former tax attorney, Curtis went into real estate to lead Curtis Investments, a company his father started. It specializes in developing build-to-suit projects for the federal government. During 12 years of existence, Curtis Investments has built 25 buildings for agencies such as the Federal Bureau of Investigations, the Drug Enforcement Administration, Homeland Security, the US Attorney’s Office, Social Security Administration and the Department of Veterans Affairs. Business was booming, yet when Crosby pitched Compass to him, Curtis could not resist.

“I was, quite frankly, perfectly happy doing what I was doing,” Curtis says. He had known Crosby for a year through the club. They played golf together several times and had never really talked business. Eventually, Crosby learned what Curtis did and one morning, in the summer of 2011, pitched the idea to him during a round of golf. “I saw instantly that this is a very real business opportunity with a very bright future,” Curtis says.

Compass is targeting second-tier US markets it believes are underserved by existing leaders – such as DRT – that tend to focus on the few largest, most active markets, such as New York, Chicago, Silicon Valley and Dallas.

Crosby does not intend to go against DRT or other giants in any of the markets they play in. “I’m not trying to go out and take on my legacy,” he says. “The intent is to serve the markets in the areas that don’t necessarily make sense for somebody like Digital Realty.”

Analysts say there is plenty of room for new entrants in these second-tier markets. A Tier1 report in 2011 identified at least 14 markets that were “emerging”, including Atlanta, Boston, Denver, Philadelphia and Portland. Delivering data centers to customers anywhere they want, as opposed to anywhere other prospective customers are established is one piece of the Compass equation. Another piece is control.

Wholesale data center tenants are usually in buildings where they share certain components with others. These can include electrical and mechanical infrastructure, loading docks, security spaces, and so on.

While DRT is good at providing customers with their own infrastructure, there are still customers that do not want to share things such as loading docks or security operations, Crosby says. Compass is offering clients their own solution, including control over branding.

Crosby's history with the team behind Digital Realty

Jim Smith, CTO at DRT, has been with DRT from its birth. He has watched and helped it grow alongside Crosby and says DRT does see some tenants on big campuses not wanting to share common areas. “There’s a smaller subset of the market that it matters to,” Smith says. While he does not think the second-tier markets are grossly underserved, he says there is demand, and going after those markets while avoiding a big fight with companies of DRT’s caliber is a good strategy. “I might’ve adopted it myself if I were in entrepreneur shoes,” he says.

Smith’s involvement with the team that started Digital Realty in 2004 began in a consulting role. He met two of them a couple of years earlier. Mike Foust, the company’s current CEO, and Rick Magnuson, former chairman, launched Global Innovation Partners, a private-equity firm today called GI Partners, which Smith consulted\ for. Also consulting for GI was Proferian, a company started by Crosby and Jim Trout, now CEO of Vantage, another recent comer to the US wholesale data center market. Crosby and Trout started Proferian after leaving CRG West, a Carlyle Group-owned wholesale  data center company that has since gone public as CoreSite.

Prior to CRG West, Crosby was in the telecom-equipment business. He spent a decade working at the now-bankrupt Nortel, starting as a computer programmer, eventually becoming regional sales director. During these years he met Trout, who was then at Hillwood Development. Crosby sold Nortel products to Hillwood in late 2000, and when the Canadian network giant was starting to show signs of decline, left. Trout moved on to become the president of CRG West and Crosby joined him soon thereafter as a consultant.

The team that started DRT was a mix of people from GI Partners and Proferian, including Smith. DRT was born when this team bought GI’s real-estate assets and took the company public in November 2004. Before the IPO, Foust and Magnuson were partners in GI, while Proferian was its consulting and operating partner. “The day of the IPO, we all became employees of Digital Realty Trust,” Smith says.

Seeing the opportunity

Crosby attributes DRT’s success to the team’s financial discipline and to it recognizing the opportunity that existed.

“We effectively recognized the wholesale space before anybody else did . . . and took advantage of it,” he says. Compass is a way to take advantage of the opportunity he sees today: an opportunity in delivering smaller data centers at a lower cost and in giving more control to the tenants.

Control and capacity planning are two of the biggest issues in IT infrastructure today. Customers want to be able to expand capacity in bite-size chunks. Most companies can deliver bite-size scalability only after investing in a large site upfront.

The challenge is starting with a bite size from the get-go, Crosby says, and Compass’ business model is rooted in meeting this.

This article first appeared in FOCUS magazine. To register for FOCUS digital editions, click here.