Over Investing Early Can Be Big Time Failure
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Someone was talking about their fear that they will fall short in building out a new company infrastructure and might need to scrap everything in a year or two because they screwed up. I liked my response so am copying it here....
Screwing up is bad. BUT scrapping everything in one to two years is not bad. In fact, that's probably what you want to assume. What is useful for a micro business today will not be appropriate if it grows. And what is appropriate if it grows will not even slightly be appropriate if it does not grow... make sense? Basically, good business planning generally involves hedging your bets and IT is one of the most important places to do this.
For example, if you need to drive to Chicago tomorrow but you don't own a car do you rent one for the weekend or do you invest in a trucking fleet because "hey, you never know what your needs will be tomorrow?"
Of course, in reality, if we really step back and think about it, the best way to be prepared for tomorrow is to only do the minimum that is necessary today because any investment for tomorrow means that we are guessing - what if we do grow a lot but don't have the needs we anticipated (we need Ferraris, not tractor trailors) or the market changes under us (Teslas drop to $10K and gas is no longer widely available.) Our up front investments suddenly turn into huge wastes of money on infrastructure that doesn't meet the needs.
So the risk of overbuilding up front is two fold - we might build the wrong thing entirely (or build what isn't needed) and we might waste the money that we need to build the right thing later.
So the rule of thumb is, keep it very small today just meeting your current needs. If the business grows, grow the infrastructure tomorrow. Don't succumb to the myth that scrapping things and rebuilding is bad, that's often the sign of both business AND IT success.
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Sure, but we're talking about SMBs here - the owners of which are often super critical and emotional. So in one to two years when you tell them that they need to scrap everything they just bought because they've out grown it, they will probably take a dump on you. Likely you won't be fired, but they definitely won't be overly happy.
So bringing those owners in on this though process while you're doing it is critical - and many reminders along the way will help keep everyone on the same page.
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I'll often say "It's best to sell your truck while it's still running." (that should be a song, oh wait...) Tell the owners that it's better to replace equipment on their terms when they have time to price shop and schedule the replacement rather than run it till it dies and then scramble to replace it.
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@Dashrender said in Over Investing Early Can Be Big Time Failure:
Sure, but we're talking about SMBs here - the owners of which are often super critical and emotional. So in one to two years when you tell them that they need to scrap everything they just bought because they've out grown it, they will probably take a dump on you. Likely you won't be fired, but they definitely won't be overly happy.
Which is more likely, that SMB owners are emotional idiots that hate their money and like to lose it and are emotionally tied to losing it? Or that IT people are bad at presenting good decisions?
Given that I constantly hear it referred to as a mistake or failure to do their jobs well, I'm guessing the later. I've never had this problem with SMB owners, but I don't save them money and go "oops" either.
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By saying "Over Investing" here, are you talking about cost... or "Over Building" with the assumption that if we build it, they will come?
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@dafyre said in Over Investing Early Can Be Big Time Failure:
By saying "Over Investing" here, are you talking about cost... or "Over Building" with the assumption that if we build it, they will come?
They are one and the same, here. Overbuilding a year or two before it is needed is over investing. Investing poorly so that money is lost compared to buying what is needed today and buying later what is needed tomorrow.
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@scottalanmiller said in Over Investing Early Can Be Big Time Failure:
@dafyre said in Over Investing Early Can Be Big Time Failure:
By saying "Over Investing" here, are you talking about cost... or "Over Building" with the assumption that if we build it, they will come?
They are one and the same, here. Overbuilding a year or two before it is needed is over investing. Investing poorly so that money is lost compared to buying what is needed today and buying later what is needed tomorrow.
That is not necessarily always going to be the case... For instance, in looking at some stuff, I see that I can build a NAS with 16TB usable cheaper than I can build a NAS with 12 TB usable.
All other considerations being equal, why should I spend more money and get less? I see that as Over Building, but not Over Investing.
[I'm just using this as an example]
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That is not necessarily always going to be the case... For instance, in looking at some stuff, I see that I can build a NAS with 16TB usable cheaper than I can build a NAS with 12 TB usable.
but no one would accuse you of overbuilding in that case.
If you put in a server with 96GB of RAM when you had 1 VM using 4GB, that's over building. If you needed to add more VMs later, adding RAM would be cheaper down the line, or it might be time to get a new server.
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Here is the problem from a business standpoint. New businesses are rarely profitable for the first 2 years. Even if the new business is growing, it may not be profitable yet. IMO you need to spec out a bit of growth in the beginning until you get to the point where the business is profitable.
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My stance on this is if the business needs to run an application, and protecting the data is the most critical point for the business, not actual uptime of the system that is hosting the data; then it only makes sense to invest in enough resources that allow you to scale up today.
Build / Buy / Rent exactly what you need today.
IE: If it's a server 2012 R2 installation with a single application that you need today, using 6GB of RAM and 200GB of total drive space (OS and application) build for that plus maybe 2Gb of RAM and an extra 200GB of space.
Super cheap, works for today, and is easily expanded for in the future.
Of course, virtualize the work so you can be hardware independent. After that, you have backups to focus on. A Desktop NAS for ~$200 would be fine for this.
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@scottalanmiller said in Over Investing Early Can Be Big Time Failure:
So the rule of thumb is, keep it very small today just meeting your current needs. If the business grows, grow the infrastructure tomorrow.
That's been my rule of thumb. Vendors try and encourage you to over spec because extra capacity equals extra dollars for them.
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@dafyre said in Over Investing Early Can Be Big Time Failure:
@scottalanmiller said in Over Investing Early Can Be Big Time Failure:
@dafyre said in Over Investing Early Can Be Big Time Failure:
By saying "Over Investing" here, are you talking about cost... or "Over Building" with the assumption that if we build it, they will come?
They are one and the same, here. Overbuilding a year or two before it is needed is over investing. Investing poorly so that money is lost compared to buying what is needed today and buying later what is needed tomorrow.
That is not necessarily always going to be the case... For instance, in looking at some stuff, I see that I can build a NAS with 16TB usable cheaper than I can build a NAS with 12 TB usable.
All other considerations being equal, why should I spend more money and get less? I see that as Over Building, but not Over Investing.
[I'm just using this as an example]
That's not overbuilding, though.
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@IRJ said in Over Investing Early Can Be Big Time Failure:
Here is the problem from a business standpoint. New businesses are rarely profitable for the first 2 years. Even if the new business is growing, it may not be profitable yet. IMO you need to spec out a bit of growth in the beginning until you get to the point where the business is profitable.
That's actually a strong example of where overbuilding is incredibly dangerous. Making a company without any money spend what little capital they can get their hands on for growth that might never happen is the worst case scenario for this. In fact, that overspending up front might end up being what keeps them from making it in the long run.
When a company is starting up and money is at its tightest is the worst time to invest both because the "cost to you" and time value of the money hit you the hardest, but also because you know the least about the potential growth of the company.
At no time is it more important to keep things lean and spend only what is needed to give the company the best possible chance at needing more later.
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Nice response. There is also the notion that the business could pivot as the market changes, and the business needs to adapt, and whatever you invested in initially might be completely upside down from where you end up.
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Interesting convo. I can't get into too much detail but in the solar industry it is ESSENTIAL to have the investors lined up. If you don't, you die.
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@Son-of-Jor-El said in Over Investing Early Can Be Big Time Failure:
Interesting convo. I can't get into too much detail but in the solar industry it is ESSENTIAL to have the investors lined up. If you don't, you die.
Having a plan to scale, and having money ready to do so is one thing. Overspending and hoping you scale is another... that one is the dangerous gamble.
I can drive a monster truck to work because I might need the extra horse power, chassis clearance (maybe there is a flood... we live below a dam and if it breaks we'll be flooded), or because I can get home much faster by just driving over the top of everyone. But it's just unnecessary.
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@BBigford Understand. In this industry, materials are actually secondary to the investors lined up, as odd as that may sound.
66% of solar companies died in the past 5 years. A lot of it was due to not having the money lined up. It's quite sad...these are real people losing their jobs.
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@Son-of-Jor-El said in Over Investing Early Can Be Big Time Failure:
@BBigford Understand. In this industry, materials are actually secondary to the investors lined up, as odd as that may sound.
66% of solar companies died in the past 5 years. A lot of it was due to not having the money lined up. It's quite sad...these are real people losing their jobs.
Yeah that's too bad. You have to remember though that a lot of investments are based on those VCs having investments flowing in. If one of their investments doesn't yield a return, it could be cataclysmic all the way down the chain.
On the other side, it's not a new technology but it's starting to get a lot more traction but still fluctuates with support. So big investments have to yield big returns, often those VCs will pull funding at the last minute and the entire project collapses. Risky business to be in.
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@BBigford Big time risky. In particular the Chinese market. So funny to see the price of materials going down so far and the price of electricity going up, and yet Chinese solar companies are not growing.
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@Son-of-Jor-El said in Over Investing Early Can Be Big Time Failure:
@BBigford Big time risky. In particular the Chinese market. So funny to see the price of materials going down so far and the price of electricity going up, and yet Chinese solar companies are not growing.
Fossil fuels and other kinds of power producing entities will continue to rise until they are far unaffordable. They are consistent and investors see the return, so they will milk those products dry.
Nobody wants to be the first line of investors, they just want to see a hefty return.
