It’s one of the great truths of capitalism: Businesses want to grow. Small businesses want to become midsize businesses, and midsize ones want to get big.
But getting bigger involves growing pains, and nowhere do many up-and-coming companies feel that pain more acutely than in IT. We’ve all heard horror stories of companies whose growth was hobbled — or worse — by inadequate support systems.
Like a child who always needs new clothes, your successful business will likely outgrow its IT outfit several times as it gets bigger. And in the same way that new parents learn coping skills from more experienced families, small and midsize businesses that want to ensure their IT infrastructure keeps pace with their growth can benefit from what big companies already know.
Just what do they know? We picked the brains of IT professionals who work at firms that provide outsourced IT servicesto companies of varying sizes (most have in-house experience as well) and broke their advice down into six basic lessons.
Their main message? Think strategically. Make decisions not on the basis of what you need right now, but on the basis of where you want to be in six months or a year.
Your changing IT needs “will be upon you even faster than you expect,” warns John Baschab, president of the management services group at Technisource, http://www.technisource.com/ an IT and engineering outsourcer. Heed these six pieces of advice, Baschab and other experts say, and you’ll never have to go to work with an IT infrastructure that just doesn’t fit.
Put IT in your budget
It’s tough for cash-strapped young companies, but it’s crucial: Make sure IT has enough space in your budget. “Small businesses don’t know how to budget or plan for IT,” says Dave Brewer, president and CEO of BC Networks Inc., a managed services company focused on the small and midsize market. “In an enterprise, they might budget $10,000 to $12,000 per employee per year. A small business might have a hard time spending a tenth of that, for both budgetary and vision reasons.”
In particular, Brewer says, small businesses rarely if ever budget enough for support or training. Often the result is that employees are not up to date on the latest software and are not working as efficiently as they could. Brewer’s advice: budget 10% to 15% of salary per employee per year for IT.
And then institute some way of knowing that you’re getting your money’s worth from your technology investment. Don’t just add money to your budget — come up with some kind of financial model that will enable you to know whether you’re getting what you’re paying for, recommends Dan Hoover, vice president and area director at Ciber Inc., http://www.ciber.com/ an international systems integration consultancy.
Enterprise IT organizations use return on investment analysis or some other investment evaluation method, Hoover points out, but small firms that may not have established such a formalized approach to ROI can get by with a simple payback period analysis, he says.
To perform such an analysis, Hoover says, companies should first identify all the expected costs associated with a technology investment (software, hardware, internal and external resources, communications fees, workspace and so on). Then they should forecast all of the expected financial benefits (reduced labor costs, lower inventory-carrying fees, increased production and the like) and quantify them.
“If your costs are recovered in the first year,” Hoover says, “the project is worthy of serious consideration, especially if the benefits are high. If the payback period is more than a year, it may be best to look elsewhere.”
Plan your IT future
Dedicating more money to IT won’t help if you don’t have a plan for what you hope to accomplish. It’s not just about budgeting more, says Brewer, but also about allocating your budget properly.
“Small businesses tend to think in terms of replacement. When they make their technology purchases, they’re buying to fill a gap — to replace technology that’s worn out or unsupported,” says Kevin Karcher, vice president of the infrastructure IT outsourcing team at Electronic Data Systems Corp.
Problem is, such companies tend to use whatever versions of the operating system and software are on the new machines when they buy them. The result can be a collection of mismatched systems that is harder to administer to and that makes training more difficult. “That’s not strategic thinking,” says Brewer.
Another danger to that behavior pattern is that small businesses can end up not with just a hodgepodge of systems, but a hodgepodge of cheap systems. Making ad hoc buying decisions based on immediate needs tends to lead to buying whatever is on sale at the local electronics superstore. That in turn means a network assembled from less-robust routers and switches, a consumer-level firewall and other technology unsuited to the needs of a growing business.
Karcher says that major corporations don’t look at such “point” solutions; they spend more time and energy on integration, which in turn allows them access to best-of-class applications. Through research, planning and understanding of the business units’ needs, enterprise IT is better able to acquire and integrate leading technologies from multiple vendors.
And paying attention to integration from the outset can give a small company not just access to higher-quality applications, but standardization and consistency as well.
“There’s a benefit to the process discipline associated with doing routine things in the same repeatable fashion in an efficient way,” Karcher says. “Standardization brings definition to process, roles and responsibilities, and this consistency and repeatability allows an organization to become more efficient.”
Make IT part of management
IT’s influence extends beyond just getting the best equipment. “The [small business] owner needs to think of IT as a part of the management team and include them in discussion of what the business is about and where it’s going,” Hoover says.
Involving IT managers early in discussions about business direction allows them the opportunity to meet the business owner’s expectations for timing and costs. The department may even find ways to improve business direction through the use of technology, Hoover suggests. “Enterprise IT organizations have used [technology] to reduce labor costs, speed time to delivery and bring process discipline to their organizations,” he says.
Technisource’s Baschab points out that IT sits at the intersection of numerous vendors — Internet providers, management consultants, hardware suppliers, staffing firms, telecom and datacom providers and more. That means managing relationships outside the organization, which is properly a management-level task that shouldn’t be left just to technicians.
Karcher agrees: “If you do not have an IT professional on your team who can interact with your business team and decision-makers — get one.”
Obviously, a small business can’t always afford a dedicated IT manager, so it’s fair to ask when the ROI on hiring one makes sense. “I’d say the break-even point is in the $30 [million] to $50 million revenue range,” says Baschab. “Good IT governance can save 20% of expenditures. So if you do the math, once you get to that point, you’ve saved enough to pay for your IT manager. That’s when IT governance will start to pay for itself.”
Take care of basics
Part of knowing how to allocate your IT budget is understanding what has to work. “Apply Maslow’s hierarchy of needs to IT,” says Baschab. “The lowest level of the pyramid, the physiological needs like food and water — that’s your operations and infrastructure. It only applies to a few areas — backup, security, disaster recovery, reliability of Internet connection and e-mail — but they’re the ones that’ll kill you if they fail.”
Some of these needs are like the heat in your house: They operate in the background and you don’t notice them until they fail. Others are like electricity: You use them every day, and they have to work when you call on them. Baschab points out that your needs as a small company aren’t going to be different in terms of sophistication as those of a big one, just different in scale.
“Your firewall needs to be just as secure as the one at a Fortune 100 company,” he says. “They may have hundreds of network devices, and maybe you only have two or three, but you must be just as buttoned up as they are.”
As further examples of areas in which even a small business has to meet the same standards as a large corporation, Karcher cites security and privacy. Corporations may have more to lose from security breakdowns, but small businesses also have to understand the laws that are in place and the risks that may arise from honest mistakes.
This is particularly true for companies doing business internationally. “There are many different security requirements to navigate in other countries,” Karcher says, “and many new privacy regulations to comply with globally.”
Then there are the public aspects of IT, which have to work like the telephone, says Hoover — that is to say, users expect them to be there every single time, just as every time they pick up a telephone they get a dial tone. This is the expectation your staff has for e-mail, printers, fax machines, instant messaging, teleconferencing, backup and recovery and so on.
Large corporations give high priority to ensuring that the IT components that keep the business running smoothly are as reliable as possible, and so should you. That means redundant Internet connectivity and backup plans for e-mail going down, for example.
Beyond that, make sure you know what is core to your business — what only you can fully understand and manage, advises Hoover. Own these IT assets and manage them from inside your IT organization. For example, a marketing communications firm would want to own the IT equipment and software that are used to create designs for advertising or marketing for their clients, but they may decide to outsource the billing system used to send invoices to their clients. Creating design is a core competency, but when it comes to creating invoices, someone else can likely do it better.
And also know what you don’t have to take care of yourself. Help desk services, monitoring server uptime, disaster recovery, some application support and maintenance — all of these may be candidates for outsourcing to a provider that has already developed efficient operating models.
“It’s like plumbing,” Karcher explains. “You don’t have an in-house plumber; you get one when you need one.”
Choose your vendors wisely
“Enterprise IT organizations have learned that suppliers of IT hardware, software and services are key to their success,” says Hoover. “These relationships must be managed well, and partnerships of trust with clear expectations must be established.”
Part of managing your vendor relationships is knowing when your current vendors no longer serve your needs. “As you grow from really small to small to medium, you need to know when to graduate to a new vendor,” advises Brewer. “People tend to feel comfortable working with companies their own size, but they’ll outgrow their vendor without realizing it.”
When that happens, he says, a business runs the risk of losing out on scale-pricing advantages, and not getting the appropriate level of expertise and help.” Brewer’s rule of thumb: “You should always be slightly mismatched with your vendors.”
Hoover agrees: “There are a lot of choices out there. Get one that’s just a little bigger than your organization so you can learn from them.”
Before you can learn, you need to be clear about your expectations. Don’t assume that a vendor understands your needs. “Buyers often keep their needs close to the vest,” says Karcher, “but that may not be in your best interests. Be open and clear with your vendor about your present state, your attitudes and your priorities. You may end up spending more money, but you’ll get a superior solution that delivers greater value and lower risk. The best relationships are always mutually beneficial.”
And finally, follow big companies’ example by continuing your company’s IT education as the firm grows. Get in the know about what other companies in your field are doing, says Hoover.
Large corporations have learned the benefit of meeting with noncompetitive IT teams from other companies to gain insights and hear about experiences with technology. IT groups and industry organizations can also be a source of valuable information — Hoover points to the Data Management Association, the Society for Information Management http://www.simnet.org/ and user groups for any business systems you might be using.
And when that doesn’t work, there’s always the Web. “Unlike the old days,” says Hoover, “there’s enough information online that your research can be on a par with that of large companies. The Net is a big equalizer — you can know as much as the big boys.”
If all this sounds like a lot to absorb, especially when you’re in the middle of trying to grow your company, remember that you don’t have to do everything at once. Pay attention to the basic rules — think strategically, and stay at least a little bit ahead of where your company is technologically right now.
And on those days when you’re feeling really small, keep in mind that you have some advantages over the big guys. As Hoover says, “Large enterprise IT organizations do not have all the answers; they make mistakes every day that SMBs would more easily avoid.”
Small and midsize companies have fewer layers of management, which enables top brass to have more intimate knowledge of what goes on in IT. They can see the whole business environment at once and make decisions accordingly. And they are nimbler than corporations and often able to adopt new technology quicker and more easily.
By combining the advantages of being a small business with the lessons of enterprise IT, you can make sure your growing business is dressed for success, no matter what its size.
Jake Widman is freelance writer in San Francisco.