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Technology challenges of fast-growth SMBs

IT investments are just one of many challenges that IT managers face in fast-growing small and midsize companies. First in a three-part series.

First in a three-part series.

Small and medium-sized companies know it all too well: The "growing pain" years are typically a fast-paced time in which business requirements often outstrip available resources, and CIOs have to make decisions based on factors they may never before have considered.

"It's like the awkward teen years," explained David Cho, CIO of Marvel Enterprises Inc. Cho is referring to that stage of a company's life when it grows from a small firm into a mature, midsized company -- complete with accountants, health-care benefits and an enterprise resource planning system. Marvel Enterprises, which has 200 employees and is growing at the rate of approximately 50 new employees yearly, is headed right into those "awkward teens" and the new challenges they bring.

In Cho's case, he recently had to worry about the financial stability of a potential hosting provider -- an issue he really hadn't had to think about before. After all, in a small business, cost is really the deciding factor in any IT investment.

"It's something we didn't have to deal with as a smaller firm. But now that we're getting to be medium-sized, we have to think about things like Sarbanes-Oxley compliance, and the risk to our reputation if our partner closes its doors," Cho said.

Right-sizing your systems

Growing companies often behave like mom-and-pop shops when it comes to their IT systems, squeaking by on QuickBooks and an AOL account for far longer then they should. Growing up means being willing to invest in enterprise-level IT systems.

Alba Aleman, president of IT integration firm Cairo Corp., in Chantilly, Va., said her firm decided to invest in a better accounting system last year for the sake of the company's professional image. "We knew we would not be a player in our market with a home-grown accounting system," Aleman said.

Conversely, that doesn't mean you have to buy a Cadillac when a Chevy is sufficient, warned Norbert Kubilus, CIO with Sunterra Resorts and a partner in Tatum CIO Partners, a financial and technology consulting service for growing firms. "One of the temptations in a lot of growing companies is to overbuild their infrastructures. They may acquire Oracle Financials when Great Plains would have been sufficient. Or they buy top-of-the-line servers when a Dell would've done the job."

Kubilus advised IT managers to look for the middle choice that is both scalable and reasonably priced -- neither Microsoft Access nor DB2, but SQL Server. "Buy a little bit above what you need, not a lot above."

Another way to gauge your level of IT maturity is to keep tabs on "hot technologies" in your industry. Go to industry networking events, read trade publications, or talk to colleagues. "We're always comparing ourselves to other players in the market, even though they may be 10 times bigger," Aleman explained. "We want to know what the critical components are that they have, so we know the next investments we may need to make."

Policing IT expenditures

When you're small, you don't have to worry so much about planning your IT purchases. Your PCs and printers aren't major expenses, and your IT budget is minimal.

But growth eventually requires a more disciplined approach to IT purchases. For starters, you need an inventory of what hardware and software have been purchased, and where and how it is being used, so people in one department aren't duplicating purchases in another.

It also means setting standards for future purchases so people aren't buying incompatible technologies. "Standards are absolutely important for growing companies. By adopting standard hardware and software, it will reduce maintenance expenses," Kubilus said.

Technology proliferation is also related problem. Kubilus recalled one biotech firm that hired him to assess its IT infrastructure: Due to a lack of management oversight, the staff had been allowed to accumulate an assortment of desktop equipment that had not only cost more to purchase, but also was harder to maintain.

"A budget is not a license to spend," Aleman said.

Aligning IT purchases with business needs

Big companies worry about IT/business alignment, and growing companies need to as well. Aligning IT with business goals means making sure that all IT investments, including software, hardware or staff time, support a specific business goal. Such goals would include reducing delivery time on a product, speed billing or increasing online sales.

A budget is not a license to spend.

Alba Aleman
presidentCairo Corp.

Learning to think of the long-term ROI of a purchase can be a challenge for a small-business person used to the hand-to-mouth existence of a startup. Wil Schroter, CEO Swapalease.com, an auto lease exchange service, recently sold out of a $100 million business to start Swapalease, and was struck by the comparative flexibility medium and large businesses have in their ability to plan one to three years down the road.

"An IT manager at a bigger firm can ask 'Which of these will give me the best return in terms of money or time?' But a small owner will say, 'Does this make me more money now or save me from a crisis?'" Shroter said. "Long term planning is next month, not next year."

The challenge, of course, is in both learning to spend a bit extra for better ROI down the road and, conversely, in not over-spending just because there is more revenue coming in.

"IT needs to be able to talk in terms of alignment with overall business goals, and how it fits into the long-term plan of what the business is delivering," explains Bruce Barnes, president of Bold Vision LLC, an IT management consultancy in Dublin, Ohio.

Or, as Schroter puts it, "Don't pretend you live in a silo, because your decisions are going to affect other parts of the organization."

Part 2 of this three-part series will offer insight as to how IT managers can grapple with the human resource challenges of a fast-growth firm.

Sue Hildreth is a freelance writer and editor based in Waltham, Mass. She can be reached at Sue.Hildreth@comcast.net.

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