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Why a $20 Million Business Moved Its Data to the Cloud

Why a $20 Million Business Moved Its Data to the Cloud
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Among the many decisions faced by new business owners is what they're going to do about their technological infrastructure. Mac or PC? Will everything be centrally controlled--often necessary due to privacy regulations--or will employees be encouraged to bring their own technology? And, will they own and support their infrastructure in-house or base it in the cloud?

A lot can be learned from a company that has operated on both sides of the fence, such as Distribution Video & Audio (DV&A), a family-owned reseller of excess and overstock inventory--DVDs, audio CDs, video games and past-generation gadgets. DV&A, which launched in 1988, now has operations in Chicago, Florida and California.

Old school
The company once had its own servers and IT department, but recently it moved everything to the cloud. "If we were starting all over again, we'd never consider investing in all that hardware," says vice president of operations Nathalie Manecchia.

But when DV&A first started, it had no choice. In the early 1990s the company ran with an off-the-shelf accounting package, but its growth demanded something more capable. With the help of external funding, it invested in complex and expensive enterprise resource planning (ERP) software designed to handle inventory, billing and the other tasks the growing company required. To run the software, however, DV&A had to invest in a stack of Dell servers. "I think we had a total of eight servers that we purchased between 1998 and 2001 while we were ramping up," Manecchia recalls. The hardware cost roughly $50,000 to $60,000, she says, but it also required the hiring of a full-time IT person and pricey consultants to do custom programming.

By 2001 the company was disenchanted with the whole setup. "The licensing fees were horrible, and upgrades were a nightmare," she says. "Plus, you needed consultants to maintain it and a database administrator to run it and keep everything backed up."

DV&A switched to lower-end software, making do with QuickBooks, spreadsheets and an off-the-shelf mail-order management program, which eliminated the need for most of the infrastructure. But since the company already owned the servers, it carried on with its in-house setup for file sharing. "It wasn't neat, it wasn't pretty, but it worked," Manecchia says.

As 2007 approached, the servers began to break down. "We started scavenging parts from the nonworking ones to keep the working ones going," Manecchia says, "and it finally got down to where we had maybe one working file server. At that point we asked ourselves if we really wanted to invest another $15,000 to $20,000 in hardware." Also at issue: the $70,000 a year DV&A was paying for IT services.

New school
Cloud-based services were just gaining traction at that time, and DV&A took a look. "Between 2007 and 2009, we moved more and more of our application-based software to the cloud," Manecchia says. "Now we have no servers, and no critical data is stored in the building."

The company's first move was to turn its ERP systems over to NetSuite, a full inventory, general ledger, customer-relationship management (CRM) and e-commerce package. "We'd actually looked at NetSuite in 1998," she says, "but it just wasn't there yet. Nine years later, they were where we needed them to be."

The relatively seamless transition to NetSuite gave the DV&A team the confidence to move other operations to the cloud. Now it uses Box (formerly Box.net) as a file server, an outside Microsoft Exchange provider for e-mail and Yammer social networking software for employee collaboration. All told, implementing the switch cost about $30,000--more, perhaps, than new hardware would have cost--but annual licensing fees are less than $50,000, about half what DV&A was spending on its in-house IT staff and outside consultants.

A Cloudy Future
Now that she's utilizing the cloud, Nathalie Manecchia, vice president of operations for Distribution Video & Audio, says she wouldn't have it any other way. But she encourages companies to find the package that best suits their business model and requires the least amount of modification out of the box.

"It's when you start modifying existing software--that opens the door to expensive coding, engineers, consultants and so on," Manecchia says. "Once you start down that road, you can never leave."

Another bit of advice: Don't fall under the spell of all-in-one solutions.

Manecchia suggests breaking up your services among different providers--one for e-mail, another for CRM--so that if one suffers an outage (which does happen), you're not completely out of business. "They're separate applications that don't need to talk to each other," she says. "For example, your e-mail doesn't need to interface with your ERP program."

Lastly, find a balance between the reliability of well-known companies and the opportunity to negotiate with younger, hungrier suppliers. "Everybody knows Microsoft Exchange," Manecchia points out. "Why go with someone who hasn't learned the ropes yet? At the same time, the bigger they come, the less-to-no wiggle room there is on price."

Logan Kugler is a 22 year-old entrepreneur and technology writer based in Silicon Valley. He's written for more than 60 major publications including Entrepreneur Magazine, Forbes, Fast Company, Men's Journal, Autoweek, Computerworld, PC World, and PC Magazine and he's been hired by Fortune 500 companies including IBM, CDW, BMW, and Oracle. He started his first business when he was 10 and turned a five-figure profit within the first year. He's currently working on getting humanity into space.

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This article was originally published in the March 2013 print edition of Entrepreneur's StartUps with the headline: Cloud Proud.

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