Much has been written on cloud computing: what it is, the opportunities and pitfalls associated with various incarnations, and the shift in how businesses access the infrastructure and operational systems and resources required to run their companies.
The bottom line is that the cloud offers numerous advantages for companies transitioning from small to big, especially fast-growth companies. These types of companies can leverage cloud computing capabilities to navigate the inevitable pitfalls along the road from start-up to growth.
There are three common growing pains in every company's journey to maturity—you either outgrow your market, your infrastructure, or your business and financial model. How these universal business issues are managed makes all the difference in whether a small business fails or succeeds. The cloud can help mitigate risks with each of the three growing pains, as described below.
Strategic exploitation of cloud computing can equip a smaller company with the tools to operate globally at early stages. This allows the company to do business with corporate giants while retaining precious capital, agility and high performance.
- Outgrowing the Market
At early stage companies, the founding management is often extremely hands-on and the products or services tend to be tightly focused.
At this point it is relatively easy to understand the business dynamics—what is selling, which product is driving profits, etc. Often, as the business grows and becomes more diversified it becomes harder for executives to stay ahead of business economics and market changes.
Consider an example: a 15-year-old company was the market leader in their first service offering, doing business with many of the Fortune 1000. The CEO realized that growth with their current offering was limited and they moved to develop new offerings. Two years later they had four service lines with different competitors, different clients and different growth needs.
Some of the new services brought in contracts that were 500 percent larger than the original service but involved substantial investment in order to deliver service levels that were guaranteed. Having never updated their systems or processes, the CEO couldn't easily tell which services were profitable or if they were losing money on some. It was hard to determine how to invest to drive profits.
This is a critical juncture for evaluating how the process oversight and business intelligence can be integrated into the operations of the company through utility and intelligent systems (e-mail, data storage, ERP, Business Intelligence, CRM, etc.) so the leadership can get an accurate picture of the business. Retaining clarity becomes harder and harder as the business has more offerings, more competitors and more clients in different industries.
Typically, companies at this stage operate very lean; investments in physical and systems infrastructure are a painful distraction from the core business. Here, the cloud offers significant options to advance capabilities with minimal investment. Instead of expecting your desktop support technician to make the giant experience leap to strategic CIO, explore the options of the cloud.
- Outgrowing Infrastructure
A common phenomenon in growth companies is that the entrepreneurs who create them have an idea that they go out and sell—picture Michael Dell selling computers out of his car. As companies grow, a different kind of management must be added to the mix in order to be able to repeat and scale success.
This is a delicate balance for the business. Over-investing in complex systems can drag the company down, changing the focus from the external market to internal processes.
Consider the example above of the company that moved from one service to four. By adding a cloud CRM system the company was able to "go live" within a few weeks and the sales team could finally document sales activity from their phones, reducing the information lag and giving the CEO the tools to understand which sales people were the most productive, which competitors they lose to and why they would lose to each one. With a minimal monthly fee the company improved both strategic information flow and sales productivity.
Cloud computing helps growing companies stay nimble as they grow. Introducing cloud-based solutions, such as infrastructure, Business Intelligence and supply chain systems, can help the leadership team without creating a heavy layer of non-strategic administrators.
- Outgrowing the Business and Financial Model
By taking advantage of the benefits of cloud offerings, a company can realize cost efficiencies that will help the company achieve and sustain profitability through the inevitable evolution of the financial model.
It is astounding and alarming to see how many $25-$100 million businesses are making major decisions from spreadsheets that may or may not have a typo.
At some point, most businesses seek investors, a merger or an IPO. In any of these scenarios, investors will be more confident in your company and your ability to manage cash flow if you can reduce real and perceived risk by demonstrating financial reporting systems with governance processes behind them.
As cloud computing evolves, growing companies continue to use the cloud in many inventive and beneficial ways. In future columns I will discuss the various dimensions of cloud computing and how to realistically evaluate and obtain the benefits, while avoiding pitfalls and risks.