Throttle or bust - how to save your hosting business
It’s an all too common occurence in the web hosting industry these days; A new company expires within two years.
So why is this phenomenon even happening? Well, that’s a relatively open-ended question, but the answer can be real simple.
Growth: Every company strives for it, few companies actually plan for it.
An all too familiar scenario is as follows:
Company A opens with a solid offering. Company A starts to get a decent reputation. Company A gains more clients. Company A hasn’t planned for growth. Company A starts a dramatic decline.
This didn’t used to be a problem back in the last 90’s and early 00’s. The problem seems to have reared it’s ugly head most abruptly in the past three years and has claimed many many companies. What does it come down to? greed.
Company directors have to realise that with a larger client base comes a larger demand stability and consistency. The same foundations that were laid when the company came in to the market must, at all times.
So where does greed come in to this?
It’s easy to see why service levels drop at the “flavour of the month” companies. Instead of taking the growing profits to grow the staff roster and expand their infrastructure, the money makes it’s way to their pocket instead. Big mistake.
It comes down to knowing how to throttle your company’s growth. When service levels are reported as dropping, you must batten down the hatches and take care of your number one priority; your existing client base. Yes this means turning down new business for a while, at least until such time as you have stabalised somewhat and added to your staff roster new staff.
As a company, we experienced this phenomenon in 2004. Callum and I noticed the company growing at a startling rate and we started to see some rumblings of discontent. We caught it early and stopped accepting new signups for five months. That five months was spent hiring and training new staff, re-establishing service levels for our existing client base and most importantly, taking stock of the previous years astonishing growth that had led us to the crossroads in the first place.
If we had chosen to ignore the rumblings, we would have undoubtedly suffered the same fate as many new companies and would not be the company we are today.
Look out for my next post, entitled “Hosting Industry Foundations”, in the next week. It will expand on this post and explain how I would advise a hosting company be built. I do not pretend to know everything about the hosting industry, but I know what works for my own company. A simple set of hard and fast rules can go a long way, as long as they are followed.
Tags: hosting
September 6th, 2006 at 12:48 am
Dear Simon & Callum,
I used to work at http://www.atlantic.net and when the going got rough we were always happy to take on more customers. I am a little confused by your comment as to not take on new customers and instead train your employees better. I do agree with having better trained employees but why not take on more customers at the same time??
Chris Donnelly
donnellyholdings@bellsouth.net
September 6th, 2006 at 10:54 am
Hi Chris,
The most important thing, for us anyway, was to take stock of something of a meteoric rise. We launched ‘DIYHosting’ with a target of 150 new resellers, which translated to 10-12 new servers online. That target was set for April of 2004 (seven months after opening DIYHosting). We met and exceeded that goal by a country mile. Therein lay the problem.
Our business plan for DIYHosting was exceeded and, as feared, so were the limits we set for customer:staff ratio. As expected, csutomer relations and support became strained due to the off-tilt proportions. The first few rumblings of discontent were to be expected; you can’t please every single customer, no matter how hard you try. When the number of (albeit mild) complaints came in, we decided that if we were going to be abl to grow as we wanted, then we needed to take a few months with only our existing client base and use them to plan for the next 4 +/- years. It worked very well; after the five month period, we ‘came back’ with a staff roster that had doubled in size, and new plans that were based off of our actual growth over the previous months. One thing we didn’t account for, with regards to growth, was the number of “word of mouth” referrals. That really tipped us over our ‘limit’ as far as clientbase size goes.
It was important, for me especially, to have the five month period. It really helped us get where we wanted to be, feature, security/support and client wise. If it wasn’t for the hiatus (of sorts), I think we would have become an ‘average’ company. Lots of people would be happy with that, but we spent too much time and energy on the subsidiary to become ‘just another provider’. That five months, in my opinion, is what helped us build the company up enough for a texas corporation to come in with a purchase bid and eventually take over the reigns of DIYHosting.
Thankfully, with EIRCA, we now have best and worst case scenarios drawn out, based on DIYHosting’s staggering growth.