Isn't it time you started minding your own business?

Advice Nick Booth Dec 24, 2012

Virtualisation and the cloud mean SMEs can use enterprise technology. Isn't this the perfect time to start your own cloud business?

Have you ever considered offering your own hosting service on the cloud?

If not, now's the time. A growing numbers of small companies can't be bothered with the pain and expense of running their own IT any more. They want a friendly local provider, whose offices they can see and hand they can shake, to do it for them. They don't necessarily want to buy from a big corporation with a faceless support person. They want to deal with company of their own size, who will be excited and motivated about winning their business.

Multinationals will tell you that your business is important to them, often through an automated answer phone message. On the other hand, a small business will demonstrate this importance, every time you pour your heart out to the account manager or proprietor over drinks.

This is why there is massive demand for cloud and hosting services from SMEs, according to analysts, who believe that there's never been a better time to start your own hosting service.

They don't necessarily want to buy from a big corporation with a faceless support person. They want to deal with company of their own size, who will be excited and motivated about winning their business.

“The big companies can't give the levels of service that a small business needs,” says hosting broker Tim Anker, founder of Colocation Exchange. “At [company X] you might just be a name on a rack and you might never speak to the same support person twice. A small, owner-run operation is likely to know you personally and you will never have to waste hours explaining things to different strangers on the phone.”

This is where cloud computing has created a gap for ex resellers or, indeed, anyone with a sympathetic ear, an understanding of business and a passion for cloud knowledge. Many are getting into supporting local businesses, by using the cloud to run all their back office IT and business applications for them, at a fraction of the price, by remote management.

“Virtualisation and cloud computing have made enterprise IT affordable to SMEs. So resellers can still supply IT, only much more cost efficiently, by cloud aggregation, hosting or co-location. The economies of scale and the flexibility make it massively attractive to SMEs, who really don't want to touch IT management with a barge pole,” says analyst Clive Longbottom, senior research analyst at Quocirca.

The success of a number of start ups exemplifies this. Gyron, Node 4 and 4D Data Centres have all grown rapidly in recent years and there's a great opportunity for any enterprising techies out there who fancy starting their own hosting business. When Deloitte published its list of the fastest growing tech companies in Europe, the Middle East and Africa (EMEA), several start up hosting and colocation companies made the Tech Fast 50.

Hemel-based Gyron, Node 4 in Derby and Surrey based 4D Data Centres all use cloud skills to offer colocation and or hosting. All were founded by people whose roots in the channel, with the possible exception of 4D Data Centres, whose technical director David Barker started his service company while still at school.

If you're a project manager, IT reseller or data centre manager, you may be asking yourself if now is the time to launch your own hosting company. But there are few things you need to know.

Is there a market and how do you enter it?

One of the characteristics of a boom market is that many people just sort of fall into it, says Longbottom. There were many accidental millionaires created by the mobile phone and property booms, where people made a fortune being in the right place and staying there.

David Barker got into hosting after he'd been a web publisher. Having learned how to host his own designs on rented rack space with Fasthosts, he began hosting other people's web portals. From a £30 a month investment his company organically grew until he was renting capacity from a host in Docklands and selling the space to local businesses. Eventually, after years of gradual growth on no funding, an angel investor saw the potential, and poured some funding into the company in exchange for a majority holding. Now 4D Data Centres has its own 12,000 square foot data centre in Byfleet, Surrey. These days 4D is more of a co-location specialist, providing the infrastructure (light, power, UPS, cooling, hot and cold aisles) in which other people can place their kit.

 

Another who fell into cloud services is Max Frimond, founder of Wirehive, which specialises in hosting the IT for web agncies – which is more or less how Barker started 4D. One Wirehive client gets its services almost entirely in the cloud. Frimond's big advantage was that he knew what customers wanted. “Providing managed hosting was not deliberate but more a response to customer demand,” says Frimond. The grounding in IT services and digital agency is the foundation for the quality support and services that SMEs customers will need, he adds.

What are the biggest challenges?

For Frimond it was getting the courage to take the plunge and set up a services company. Hosting was a progression from that. You will need to handle pressure.We are very conscious of timescales for delivery of services and support,” says Frimond, “overcoming technical challenges is easy by comparison to running out of time.”

 

Getting the right people is important, says Barker. “The thing that customers like about us is that we know their business and we are familiar with what they've got on their rack so it's fairly easy to fix.” As the company gets bigger, finding staff with the right skills and attitude becomes more difficult.

How do you get the customers?

The time honoured policy, when branching out on your own, is to nick all the clients you've built relationships with while working for your current employer. Only when you get really big will you have to worry about someone doing this to you.

After that you have to grow your own. Wirehive's Frimond admits this is hard. Being a small company means that convincing new customers is sometimes a challenge. Word of mouth is always good but big corporations have much more marketing muscle to convince people to go with them.

You will need to take a financial punt at some stage. Ironically, Wirehive eschewed digital marketing in favour of chucking all its money behind a face-to-face event. In September it hosted The Wirehive 100 Awards evening, featuring wining and dining and heavy duty flattery of all the nominees, all hosted by a top comedian. The event, based on Wirehive's League Table to recognise the talents of digital agencies, has created a massive response. It's ironic that a digital specialist should do its most effective marketing through face to face meetings – but quite logical, given the amount of cyber-surfing fatigue most IT work induces.

Financial drought is a killer for small businesses: How do you survive?

Barker ran his business for years from home, while still at school, so running costs were low. His mum even gave him a lift to Docklands in the middle of the night to fix problems. The track record of hosting clients eventually attracted investment.

“We are lucky to be privately financed through an individual angel investor,” says Barker.

“This has given us a great deal of flexibility as well as providing capital to take us through the first year of running the data centre, something we never would have raised commercially at the time.”

More recently, 4D Data Centres has had to explore commercial asset based lending in order to acquire the equipment (such as generators and cooling) for the next phase of expansion.

Lack of funding or credit would definitely have held back the company's growth, he says.

How do you convince customers you are better?

Hosting is the type of business that requires a lot of trust. Expect to spend a lot of time in the early years building that trust, advises Barker. “Over time we built up a track record of being a reliable data centre operator and some of the problems we first experienced have gone away,” he says.

It's still possible to compete because many big companies are so oblivious to small customers. “Even back then we won business from more established companies because of the people we employee,” says Barker. “People will buy from people and if you spend the extra time with a client to gain their trust and take a genuine interest in their business it can be worth more than 10 years of trading history,” he says.

 

What is the one piece of advice a start up must heed?

You need to stay in control, warns Barker. “The biggest challenge so far has been ensuring we have the proper controls in place for things like financial management, staffing, projects and so on,” he says. Being able to appoint a credit controller helped cash flow considerably, as this was perhaps Barker's forte.

In conclusion then, the consensus seems to be that starting your own cloud or hosting services is relatively easy. It's making the move from being a small company to a medium sized operation that's tricky.

“The transition from a small company method of working to more of a medium-sized company has meant a change in the way of working for staff, and directors, to be more process driven,” says Barker.

But you can worry about that later. The first thing you need to do is line up some clients you can poach from your current employer. Good luck.