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Why cloud solutions are a double-edged sword for startups

One of the fundamental aspects of any business today is to automate and streamline. That’s what existing businesses spend a massive amount of time doing. Economies of scale for larger companies lend themselves to in-house teams that specialise in every business system necessary to run the operations and for many companies this competency is essentially part of the company’s intellectual property and differentiation. So what about startups? How does Mr. Founder build such competencies and capability so that the business has a chance of survival and not become laden with the cost of experts that can build these systems?

The good old days

If you were born this side of 1990 you would have been around 8 years old or younger when the first cloud services started to go live. That was how I cut my startup teeth in 1999, starting my first company which was the first of its kind to offer business systems for ‘rent’ over the internet for a fixed monthly fee. Prior to that, the standard from around 1990 onwards was to buy a server, install Microsoft Windows Server and then expensive business software that came shrink wrapped in a box both for the server side and the PC side. CD’s as a format to ship the software only became mainstream at the end of the 90’s. In the 80’s it was a completely different story with businesses typically running a highly expensive central server with dumb terminals on the desks. From 2000 to today, thanks to Amazon Web Services and other cloud providers, software companies no longer need to rely on physical distribution. Cloud services have matured vastly and we can now buy processor, storage, and services on a sliding scale depending on our needs. The software itself can be updated in the background even while we continue to use the software.

Today’s cloud solutions

So, given this incredible shift from shrink wrapped software to streamed cloud services one would think that we’re living in blissful times where our IT headaches are a thing of the past. The reality is that today’s cloud solutions come with a myriad of additional considerations. I refer to the previous era as the good old days because despite the cost we had control. Complete control over our software and hardware. If something broke it got fixed. Cloud solutions have a far more complex footprint in relation to who has access and who controls the core software itself.

Let’s go through some of the issues:

  • Ease of purchasing leads to complex and often poor decision making and license fees add up quickly.  Cloud services and solutions are designed to be very easy to subscribe to. Some years ago I ran a fashion business where we decided to adopt for our CRM. One call and a credit card later I’d signed up for a year’s contract for our users and we had access to the software online. Because of the easy signup process with the major vendors what’s often overlooked is the product selection process which was a key step in the old method of buying software. A sales person would come on site and work through your requirements and then there would be an expectation of a ‘beauty contest’ to select the winning solution. In today’s model of Software as a Service and Cloud services the license costs add up quickly. The low entry-point prices are easily considered mistaken for a low cost of ownership but the complexity of implementing these solutions properly can mean that you are locked in for a long time and have to pay considerable expenses to get the necessary technical support.
  • The requirement to customise solutions in the 80’s and 90’s has been replaced by relatively rigid processes. So our business operations are a reflection of the software we purchase. Another often overlooked aspect of buying cloud solutions is that while there is some customisation possible, in general it is necessary to follow the core process laid out by the vendor. Business terminology will follow what the popular vendors have decided as well. In many cases this is good as it takes away the need to re-invent the wheel. We can just follow what’s been prescribed and get on with more important things. However there are times when we want to design our own processes or implement an integration with a third party application. In these cases the solution can be far more rigid than expected and leads to awkward workarounds or the realisation that we should have purchased a different solution.
  • Cloud solutions are subject to the security protection managed by third parties. The reality is that utilising a service that sits on someone else’s property, often in another country, lends itself to vulnerabilities. Acquiring services from the leading vendors should provide us with the comfort factor that our data is safe and the company will be there when we wake up tomorrow, but none of this is guaranteed. So essentially companies today are building businesses on the back of a promise that the service will be up and running and allow our employees to function every day. The cost of developing an alternative approach with more control would be too high these days but one thing we can do is to ensure we have clearly worked our plans in the case of service interruptions. These don’t have to be instant-on alternatives but some form of planning should be done in this regard.
  • Maintaining seamless operations across numerous cloud service providers, SaaS software vendors, digital services, with the required monitoring and alerts systems in place is complex. Alongside the customisation topic, the total cost of ownership to maintain such operations must be carefully considered and one area that is easily overlooked is the cost to monitor the services and manage getting services re-started in the case of failure. Technical resources that are willing, able and loyal enough to manage this continuity are hard to come by so it’s essential that consideration is given to this topic as a matter of priority.
  • New services are being launched continuously from companies all around the world. Others lose popularity and wither away. There are literally 1000’s of solutions for every business purpose. The old trusted services are solid and dependable but costly. Newer solutions use more advanced technology and designs but there is the risk that they don’t have the staying power. Companies are masters at innovative marketing and it’s very easy to fall prey to unscrupulous vendors that over promise and under deliver. There’s no easy answer but again a great deal of care needs to go to vendor selection and continuous monitoring of how appropriate the solution is for your company’s need.

The challenge for startups

In starting a brand new company, a founding team has additional challenges beyond getting their ‘product market fit’ figured out. It always pains me to hear founders proudly saying they are working on their MVP but when I ask them about how they will operationalise the business and facilitate the business to grow cost-efficiently I’m met with a wide variety of blank stares and confusion. That’s not going to cut the mustard with investors any more. It did some years back when investors accepted that a founder would need help in this area but these days the competition is just too fierce and there are many solid founders who’ve figured our their business IT systems strategy. A short-list of ‘challenge areas’ to focus attention is provided below.

  1. Importance of ‘fit for purpose’ business IT systems. In other words knowing what solution is fit for purpose today and what the upgrade path looks like. For example starting with a simple CRM because it’s near-free but functional and then moving to a platform once a certain number of accounts have been reached.
  2. Identifying solutions across all the areas that need to be addressed e.g. marketing, sales, accounting, BI, HR, security, productivity, custom applications. Continuing from (1) it’s essential to consider all aspects of your business as it grows. This not only helps you validate that you understand the business that you’re in but also pushes you to innovate in this important area.
  3. Outsourcing vs building in house capability. Role of the CTO, CIO, and COO/PM functions. Role and cost of external integrators in getting business IT systems set up. These aspects are crucial and can be played a number of different ways. I’ve personally held a COO role but was also acting CIO and ran the project management function for the selection and implementation of systems. Would that be a structure you would follow or is there something more appropriate for your business?
  4. Agile vs Waterfall design and implementation. While the world has adopted Agile, it’s also a very misunderstood methodology. Countless large organisations are suffering massively because of this and so what makes you think your startup will nail it? Waterfall may be a more rigid methodology but it forces solid decisions to be made along the way. Agile projects often overrun and under-deliver because huge assumptions are made about the quality and authority of product owners who have to represent the requirements. I’ve also rarely seen an Agile project use documentation tools effectively.
  5. Hardware selection. Challenge of BYOD. Hardware I hear you say. Yes, it’s still important to know which hardware and operating systems you’re running. On IBM Bluemix this means access to certain AI API’s that would be different compared to running on a Microsoft Azure or Amazon Web Services cloud. Equally your Bring Your Own Device strategy for employees needs to be considered in light of data security and other access security considerations. Certainly these concerns are less for very early stage startups but you also want to be conscious of the risks you are running at any time and your plans to mitigate those in the future.
  6. Importance of knowing the business processes first. This is such an important point that I’ve developed a whole set of solutions to train people on how to go about this. It’s imperative that a high growth business designs the business processes that you want to run your business with. And when selecting business IT systems, knowing your business process will save you countless hours and money because it becomes very easy to know which solution meets your needs and which ones don’t. More about this later.
  7. Offering a cloud solution to your customers. Finally, many high growth companies are in fact offering a cloud solution to their customers. Developing and delivering such a solution is almost the mirror of buying and deploying such solutions (multiplied by 1000 in complexity of course). Again it’s important to consider the operational processes that will allow you to deliver your solution, whether it’s a cloud service, marketplace or similarly complex solution.

Recommendations and next steps

This post was intended to set the scene for future related posts where we’ll delve deeper into the approach to planning, selection and implementation of cloud solutions which are fit for purpose.

As always, feedback is very welcome. I’m keen to learn what others have experienced and whether the ideas outlined here resonate. Also if you need help with defining any of these elements then get started with our free guide “7 rules for raising capital” available here.

Azfar Haider
CMS360 is a set of management practices and solutions designed for today’s high growth companies. Our frameworks guide teams to be successful in launching and scaling businesses and the online program consists of courses, coaching and community.

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