Quantifying Un-scalability. (AKA - can a small Exchange Hosting provider fight Microsoft?)

This post was originally posted on Linkedin by our co-founder Eli Migdal here.

Let me start briefly with some personal background,

About 8 years ago I had one of the biggest “Exchange Hosting” in Israel. I was fast to react when I saw that many small businesses need “Exchange” but do not want, can’t afford, don’t want to manage an Exchange Server.

I invested a lot of resources, even bought a SGI (Intel Core) Blade system and we started running Exchange 2007 clusters for “Exchange as Services”

Everything went well, in most cases … Exchange is a VERY resource heavy system and maintenance was proper 24/7. I remember doing weekend shifts and never-ending DB migrations during the weekend to keep up with the growth.

And then… and I remember this very clearly … Microsoft announced their “BPOS” services, online services – Online Exchange, BPOS is now named as “365 services – Exchange Online”

I immediately (well after some time of “shock”) had the following insights:

  1. Currently, we have a profitable business model
  2. Currently, our delivery is better, a more refined product both on the ” product quality” and support aspects
  3. Currently are pricing is competitive
  4. Our current growth is very strong and only increasing

BUT…

  1. Soon … they will fine-tune their system and we won’t be able to offer a better “product”
  2. Their size will allow them to offer bigger and bigger mailbox offerings which will make our offering less competitive
  3. Most importantly, we understood that we cant fight a huge vendor with their own product when they decide “to cloud it”. We can’t fight it, because ultimately the clients will always go with the better and most affordable offer.

I was in a hard position, on the one hand, I had invested a lot of money and created a profitable business model. On the other hand, the business model is under great risk and will most likely be “extinct” soon. We live in an amazing but scary era in which a business model could be amazing one day and “soon be extinct” the day after, love or hate it – this is how it is.

I went to consult with my long-lasting business consultant, Hadar Kantor (who is now my partner in Boardish) and he helped to quantify the risk, this is how approached it:

Microsoft BPOS was a threat to my business model, it did not allow me to scale up or grow. I needed to quantify the following:

  1. What is my current “market position”?
  2. What is my current exposure, impact on my company (how much % of my company is exposed to this threat)?
  3. How many years will it take me to recover from a “total loss” of this market position?
  4. What does the number say – does it make financial sense to invest more in the current business model or change it?
After I quantified it I saw very clear numbers, and very clear information. Fighting against Microsoft hosting will fail my business model and I will lose money.

In every crisis, I always try to find the opportunity (sometimes there are, and sometimes there are just none… ), and here we saw a potentially huge opportunity.

We saw that there is a huge demand for Exchange Services, we estimated that Microsoft “will hit it hard” with all their strength especially on the marketing aspects and the demand will go even higher. We needed to understand our unique selling point, our competitive advantage, and so we did, we understood the following:

  1. We have unique experience in Exchange Cloud environments
  2. We have Unique knowledge on how to MIGRATE local exchange system to Cloud-based exchange
  3. Our support level is better, more professional than the most of the “generic support” that Microsoft had back then (and … until this day 🙂 )

So we decided to partner up with Microsoft, to resell their services and provide Local > Cloud Exchange migration services.

Looking back, it was a VERY wise decision, we migrated several hundred companies and as expected after 2-3 years we decommissioned our Exchange Hosting cluster system. I remember the celebration we had after we migrated the last client from our Exchange 2010 Cluster.

Yes, we celebrated because our new business model was sustainable and our biggest threat became a new opportunity.

Currently while writing this article – we are still a big reseller and support provided for Microsoft Exchange Online. So it was a happy ending!

I want to quickly jump back again and understand how critical the quantification of the risk was.

It was nearly impossible to say “we need to stop” to a profitable and earning business model if we had not quantified the cost of “losing market position”.

The cost of losing the market position was higher than our initial investment, and seeing that helped me to make a very hard decision. To stop investing more in a “currently profitable model” so I can invest in the “future profitable model”.

This experience was a key turning point behind creating BOARDISH, I understood that I need a clearer methodology and a platform to implement the same quantification process for multiple threats across all my businesses.

Currently in 2019 I am noticing many similar challenges for both our companies and our colleagues, especially in the hosting realms when “fighting” against Cloud suppliers like AWS, Azure and GCP.

Key tips:

  1. Understand your market position, how many years will it take you to recover from losing that market position. It will help you make smarter long-term decisions on the sustainability of your business model.
  2. Know how much each threat impacts your market position.
  3. Not being able to scale up means “death” to most companies in the tech services sector. Not because ‘we’ aren’t good enough, but the competition is so fierce and constantly adapting and growing. Scaling up means competitive pricing and economies of scale, so the bottom line is, if you don’t scale you’re unlikely to be able to compete when the competition offers a better all-round package.
  4. Try to work with the “big players”. There are many opportunities there, you can’t compete with their scale, but in most cases, they need your precision!
  5. Use tools to help you, like boardish.io that we created based on the experienced I shared in this article.

Eli Migdal

Co-Founder of Boardish.

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