The Cloud

Three Ways Small Business CFOs Can Reduce IT Costs

The small business customer is becoming the target of big IT service providers, which is good news for small business.
Singu SrinivasMay 8, 2012

As CFO (and perhaps CIO) of a small business, you’re likely experiencing the growing cost of buying and maintaining all the technology that keeps your business running and your workforce productive.  And as the IT environment becomes increasingly complex with new software-as-a-service (SaaS) applications coming onto the market almost every day, and your employees demanding to use their own smart phones and tablets for work (the bring-your-own-device, BYOD, trend), which means securing and managing a broad array of devices that may be using a variety of operating systems how can a small business get a handle on all this spending?

The average small business in the United States has 1825 applications (on premise or in the cloud) that process orders, manage a customer database, or track finances, according to research by Waterstone Management Group. On average, each user generates about 10GB of data, and the management of this data has become critical to businesses. In addition, small businesses are bearing the brunt of the BYOD trend, which further complicates data management, network security, e-mail access, and access to business applications, not to mention introducing the risk of the loss or theft of the device, as well as the data it stores. That is, your business’s data.

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All this increased complexity has a significant impact on the bottom line.  In fact, Waterstone estimates that the average spend on software, services, and tech support per employee is nearly $700 per year for an SMB. But right now there are three opportunities for CFOs to reduce that cost, improve the ROI on their IT investments, and limit the risk of technology breakdowns.

  1. Transition to the cloud. Depending on the size of the business, one to two thirds of all SMBs still maintain an in-house server.  However, during the past five years, having a third party manage and/or host that server has delivered significant capex as well as opex savings.  Many (and very soon all) software vendors have SaaS versions of their offerings, with the typical SaaS model of predictable monthly pricing. One still has to be careful of pricing accelerators and other schemes vendors may use that will drive your spend upward as you grow.  Despite this risk, SaaS offerings can increase your access to best-of-breed software at lower cost. 
  2. Consolidate spend with a one-stop provider. According to Gartner Research, the average number of vendors a typical, midsize company works with increased from 3.7 to 10 between 2005 and 2010. This includes vendors providing solutions for e-mail, security and data backup, website hosting, accounting, payroll, e-commerce, network administration, tech support, remote access, mobile devices, and customer relationship management (CRM). Many large technology brands are expanding their offerings to become full-service IT-solution providers to SMBs.  Early this year, Best Buy spent $167 million to acquire Mindshift, the largest SMB IT-services provider in the country, and is integrating Mindshift services with the Best Buy for Business offerings. Expect other SMB-focused retailers such as Staples (which already offers IT security management), as well as large ISPs like Verizon, to follow suit. And expect to see these providers offer substantial discounts in order to get you to switch from your constellation of providers to their suite of services.
  3. Fix problems before they start. Many SMBs have an if-it-ain’t-broke-don’t-fix-it mentality when it comes to managing their IT infrastructure, often waiting until a PC or server breaks down before calling an IT support company. As a result, SMBs often call a tech-support company multiple times per year, paying additional costs for next day, onsite support to get critical applications or servers back up and running. Many tech-support companies offer remote monitoring and management services that proactively check your devices and network for alarms or failure. Traditionally, these have been relatively expensive ($75 to $100 per PC per month; more than $250 per server per month) and out of reach for smaller businesses. Today, those prices are coming down due to the proliferation of fast, low-cost broadband connectivity and the growth of remote support tools and software that can help eliminate or decrease the number of costly onsite visits. One should be able to find good, proactive monitoring and remote IT-management services for under $25 per user per month.

The IT environment is changing quickly for CFOs of small businesses. While new technologies present tremendous opportunities to facilitate growth and improve efficiency, there are downsides including higher costs and greater business risk. But the cloud, vendor consolidation, and proactive management can reduce your overall IT spend.

With companies like Best Buy, Staples and Verizon, as well as the hundreds of smaller providers, all going after the small business customer, the SMB CFO is in a good position to benefit from the competition. 

Singu Srinivas, a partner at Waterstone Management Group, has nearly 20 years of experience working with Fortune 500 and smaller high-growth technology companies. His advisory and operating experience has centered on creating growth strategies, developing go-to-market capabilities, and enhancing the operational effectiveness of B2B and B2C technology companies as well as the services arms of manufacturers, retailers, and ISPs.