The problem with the automotive repair business is they are not incented to fix the problem the first time or fix it in a cost effective manner. I’m sure I’m not the only one that was screwed by a mechanic. For some, the more problems you have the more revenue for them. Many mechanics are ethical, but it’s hard to be ethical when you need to pay your bills and put food on the table.
The IT industry, especially firms that focus on the SMB market, used (I’m using past tense because the model is starting to change) a similar model – billable hours. Companies hired an IT consultant to come in and implement the hardware and software businesses needed to run their business. They charged a hourly rate to do so.
After the project is complete, the only way consultants made money was when a problem occurred. Businesses call them up screaming that the system is not working and someone needs to come out and fix it right away. Assuming the consultant was available (the good ones rarely are available); they rush out and eventually correct the problem. If the consultant was not available, your system could be down all day or longer. You are charged a fee for this visit.
Think about this relationship for a second. After the initial setup, the only time the consultant makes money is when it breaks. Sounds like the auto repair model.
Most consultants want to do the right thing and do their best to implement a system that is reliable. However, it is difficult when someone has a morale code that is at odds with their financial incentives.
Another model that is gain popularity is managed services. Managed services have a broad definition depending on who you talk to. For most consultants, it means pro-actively managing the system you purchased. For example, you are charged $100/month for a consultant to make sure your server is updated with the latest patches from Microsoft, free of viruses, etc. This model is much better aligned with your goals (unless you enjoy calling our IT consultant to fix problems) since the consultant is incented to keep the system up and running.
However, managed services may not be cost effective for your situation. You must purchase the hardware and software, hardware failures are not covered under most agreements and software/hardware upgrades are not covered either. At a minimum, every 3 – 5 years you get the joy and expense of footing the bill for upgrades.
Wouldn’t it be better to have all costs included with your service eliminating the need to spend your hard earned capital to pay for new systems as well as upgrades?
What if you could buy a system that was much more reliable, included hardware, software, and upgrades, all maintenance (even unplanned maintenance) and easily scaled with your business – up or down – no long term contracts? Would you consider it? This model, Cloud Computing/Software as a Service, is clearly aligned with your company’s objectives. Companies offering Cloud Computing services must provide a reliable, secure, and cost effective service. High support costs and security problems are the kiss-of-death for cloud computing companies – they have the same goal as you do – keep your data safe and the system running so you don’t call. Unless you enjoy calling your IT guy or gal, you should consider cloud computing as an alternative.
During a meeting with one of my contacts, she told me about a suite of Software as a Service (SaaS) applications designed for her industry. All the applications, there are about 10 of them, are integrated eliminating redundant data entry. This is critical for any business, but especially small businesses. Small business owners are focused on growing and running their business and don’t have enough time as it is to do everything that needs to get done. Redundant data entry – forget about it.
While she was very interested in this suite of services, the setup fees were ridiculously high – 40 – 60 times the monthly fee. This is a huge red flag in my book. When SaaS vendors have high upfront fees, their priority is getting the next deal. As soon as you sign-on, you’re no longer the next deal and usually fall down their priority list.
I’m not saying you should run when the vendor mentions high setup fees, but proceed with caution. If the setup fees include significant professional services to configure the service for your business, the fees may be justified. It’s easy to determine if that is the case. Ask them to outline what they do during setup. If they spend a great deal of time discussing your business with you, the fees may be justified as they are tailoring the service to your business.
If the vendor has very little interaction with you during the setup process, they probably have a lot of manual steps and may even create a unique instance of the application for you. If every one of their clients has a separate instance, the vendor’s business won’t scale and it is just a matter of time before support becomes a big problem for them and you.
While time is precious for business owners, it’s worth your effort to spend a couple hours to ask the vendor to justify high setup fees. A couple of hours upfront may save you days or weeks down the road.
There is a great deal of free Software as a Service (aka SaaS) applications available. Many free SaaS applications offer businesses, especially early stage companies, the functionality needed to get going. Before selecting free apps, it’s worth your while to spend time to ensure the apps will not hinder your business when it’s ready to take off. There are very few free apps that will scale with your business – there is a reason it’s free. At some point, you will need to move.
One of our partners recently started working with a client that choose Microsoft’s Office Live suite of free applications to support their business. The services worked great in the beginning – the apps had the functionality required and were use to use. However, as their business started taking off, they discovered some of the services made it difficult for them to work efficiently.
Most free SaaS applications have limitations and this business needed additional capabilities such as visibility to colleagues’ calendar to simplify scheduling meetings. This particular customer was interested in a collaboration solution such as Microsoft’s Hosted Exchange. Our partner assumed it would be easy to “strip” out Live’s email service and plug in Hosted Exchange. She spent hours researching options via the web site. Companies offering free services can’t justify phone support – typically a vendor’s web site is your only support option.
Based on our partner’s research, Microsoft will not allow her client to change its MX record to point to a different email service. If this company wants to position itself for future growth, they must delete their Office Live account in order to free their domain name and move it to a company that offers more control – no trivial task.
Putting off the inevitable only increases the pain and cost because they expect their staff to triple in the coming 12 – 18 months.
Before you choose a free solution, take the time to understand the following:
- Identify service limitations that inhibit your ability to grow the business. Managing a company with a few employees is very different then a company 10+ people.
- Determine the process to move to a different provider or upgrade your service.
- Understand the costs to move or upgrade?
Free services can provide great value for businesses in its early stages. However, most have limitations that inhibit your ability to grow your business. If you don’t have the time to evaluate these services, hire a trusted adviser to evaluate options for you. It’s money well spent. Don’t let information systems get in the way of growing your business.