What Cloud Computing Offers Startups, Part 2

In a previous post, I discussed the operational and financial benefits of cloud computing for start-ups. Today I'd like to discuss another benefit that's just as important, and that has far-reaching implications for the direction of IT development in the coming years.

Cloud computing makes it easier than ever for software companies to deliver innovative, business-critical services to Small and Medium-sized Businesses (SMBs).

Until recently, most software start-ups avoided the SMB market. Selling products and services to SMBs seemed daunting for several reasons:

• Limited Budgets: SMBs are well known for having spartan IT budgets. Beyond buying basic networking gear, Microsoft Office, and perhaps an accounting system, a small business may make hardly any IT investment at all. Even larger, mid-sized businesses tend to be conservative spenders, leery of risk and demanding a clear ROI from a new product—even though it's often difficult or impossible to demonstrate an ROI with a brand new product.
  
• Distribution Overhead: Reaching SMBs has traditionally required a channel (e.g., a distributor who served SMBs in a given area or industry) or, worse, many channels and lots of advertising. Channels require a lot of attention in the form of training and support, and they take a bit out of a start-up's profit margin.
  
• Deal Flow: To achieve sufficient revenue, a start-up would need to close tens or hundreds of small deals to equal the same amount of revenue possible from one or two large enterprise sales. With limited staff, attention, and marketing funds, most start-ups (with the hearty encouragement of their investors) have preferred to pursue opportunities in the enterprise market.
  

But in the past couple of years, cloud computing has knocked down all these barriers. In fact, cloud computing solutions often start with the premise that the customer has limited time and money for managing complex, but important IT operations. The cloud computing vendor rushes in as the SMB hero, managing everything behind the scenes, while offering the customer an easy-to-use, comforting Web interface.

Old Obstacle	Cloud Computing Solution
Limited Budget	Cloud computing solutions, such as SaaS applications or hosted storage, can be delivered cost effectively. There's no need for on-premises hardware and time-consuming installation and configuration services. Customers buy just what they need, when they need it. Delivery on popular platforms such as Force.com and QuickBase greatly reduces customer-acquisition costs, which normally the vendor would have to pass along to the customer.
Distribution Overhead	Cloud computing services are marketed, sold, and delivered over the Web. Customers can discover point solutions built on cloud platforms offered by vendors they already know and trust (e.g., Amazon, Intuit, Microsoft, Salesforce.com). There's no need for a large sales team and offices scattered around the country, nor is there a need to sign on and train large numbers of resellers. Sales and marketing take place online.
Deal Flow	Through promotion in established platform communities, as well as through viral marketing, blogging, and targeted marketing efforts, vendors can find tens and then hundreds or thousands of new customers. At a time when enterprises are cutting their IT budgets, reaching SMBs who are looking for cost-saving, operational improvements and strategic advantages offered through new capabilities, seems like an attractive idea.

Cloud computing has changed the nature of the typical start-up. Instead of a capital-intensive organization building "enterprise-class" solutions for large companies, today's start-up is more likely a small, nimble team, taking full advantage of the economies offered by platforms like EC2 and open source, and delivering online services that are valuable to companies of all sizes—even another five-person company down the hall.


Photo of man and clouds by donabelandewen, Creative Commons License, some rights reserved.