Is outsourced infrastructure bad for investors?


7

I did work for more than 6 startups. I never saw it. But I heard from a friend that is working for a network appliance startup, that his CEO, wants to keep the whole infrastructure in-house, because it looks amateur in the investor's eyes, if they use external services like business google mail, github private repos and etc. For me it makes no sense at all, since myself, as investor, I would look for a company that will spend my money in their core-business and not keep 2 admins, multiple servers, having problem with backup script that doesn't work and so on.

Anybody here agrees that outsourced infrastructure looks amateur?

Any reference showing that it's a huge BS?

Outsourcing Infrastructure

asked Jul 13 '11 at 20:32
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Vp.
151 points
  • Enjoy your outsourcing when this happens: http://consumerist.com/2011/07/google-deletes-last-7-years-of-users-digital-life-shrugs.htmlAlphadogg 8 years ago
  • @alphadogg That's FUD and not business account. How many stories did you read about backups that couldnt be restored and the admin just realized it when he actually needed. – Vp. 8 years ago
  • Not FUD, unless you want to turn a blind eye to the fact that this *does* happen. Then, it's FUD. Otherwise, it's a data point amongst many varied ones to understand that not all is rosy and cute bunnies in the world of outsourced IT. – Alphadogg 8 years ago
  • for sure its not perfect. no silver bullets, but for the same amount of money, you cannot do something in house, and took by the examples, just "outsource or not" means nothing to the investors. – Vp. 8 years ago

5 Answers


10

In my opinion it would look even more amateur for investors if a startup didnt outsource large parts of its IT infrastructure to someone else. Startups need to focus on their business offering, build their applications, and not worry about server racks for exchange or LAMP blades.

From experience, my wife works for a 3 year old startup that raised 10's of millions of dollars already from investors and it on the way to being bought. All of their infrastructures are outsources, down to the exchange server ,file servers and application servers. They wrote the code, but it's deployed and managed on someone else's farm.

I believe it's the only way to prepare your business for real growth and scalability and frees your time to work on things that matter.

answered Jul 14 '11 at 02:26
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Ron M.
4,224 points
  • "it would look even more amateur for investors if a startup didnt outsource large parts" Gross oversimplifcation. If someone can show me that they had good technical people, didn't want to pick up too much opex, were able to keep their capex low, get it setup quickly, and do it right, I wouldn't call them amateurs. And, no, this is quite possible. – Alphadogg 8 years ago
  • sometimes its not just about your technical capabilities but where you apply them. When you're at the very start, outsourcing is not just cheaper (we pay $50/month instead of buying our own server) -- it's also better as it frees up the technical resources to handle the real business problem at hand -- the very core of the offering of the company, not IT issues... – Ron M. 8 years ago

3

For what it's worth, I started off building out a level of infrastructure for my business but am slowing dismantling it and moving to the cloud/private hosted services. Even with stuff in the cloud, you're going to need admins if you're running a decent scale business, but it makes no sense to me to have a bunch of people running internal infrastructure for a < 5-10 man shop. The quality of hosted tools is excellent in any case.

I would have a more fundamental question if I were an investor - do I want my investment dollars going into a firm that wants to waste a bunch of money on non-core activities and facilities...?

(I should point out that some level of internal infrastructure is inevitable - for example, if you are doing embedded development then you'll need testbeds, or if you're doing some sort of enterprise deployed software that is highly performance critical, you'll need a dedicated 'perf lab', but I would try to make zero servers the goal).

answered Jul 14 '11 at 17:35
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Steve Wilkinson
2,744 points

3

Not at all. There are many successful startups running using IaaS or SaaS. And even already not startups, like Netflix with $2.2 billion revenue, and they're using Amazon Web Services.
You can read why AWS on Netflix' tech blog post: "Four Reasons We Choose Amazon’s Cloud as Our Computing Platform" and in presentation "Netflix In The Clouds".

Using free GMail accounts for company, that indeed wouldn't be very professional. But if you're using Google Apps for Business, it would be ridiculous to call it unprofessional. I would say similar logic applies to JIRA Studio, of course hosting it yourself gives you more control, but it's a professional SaaS used by important players.

answered Jul 14 '11 at 01:34
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Vartec
335 points
  • Minor complaint is that Netflix != most startups. – Alphadogg 8 years ago
  • @alphadogg: Netflix is just an example.There are thousands of startups using IaaS/PaaS/SaaS solutions. Would Netflix be as successful if they would focus on managing servers, rather then on building platform? – Vartec 8 years ago
  • You can manage servers without it becoming your "focus", depending on the skills of the team. Obviously, if the founders are all sales people that don't even understand their laptops, then they should definitely outsource. But, OTOH, I think the hyperbole is unnecessary. It's a strawman argument. I have run (and been near) many startups that have their own servers, and it doesn't become their focus. – Alphadogg 8 years ago
  • @alpha: I know it is possible to have one team do all, but it's not efficient. Having development team do system administration is distracting, having dedicated sys.eng. team is not something some start-ups are willing to spent money on when they have just a few servers. – Vartec 8 years ago
  • I don't know what kinds of systems you use, but a recent startup of mine has two servers running a handful of virts. In the last few months, we've spent maybe a total of 6 person-days on setup and maintenance? We've actually had more issues and hours lost dealing with customer lack-of-support when we migrated some virts to be managed "in the Cloud". Troubleshooting through three tiers of drones isn't my idea of efficient. :) – Alphadogg 8 years ago

-2

Yes.

Problem is that:

  • You may have legal problems. What exactly is the contract you ahve with gfoogle? Privacy laws? desaster recoveryp lans?
  • Dont get into Githu´b. Yo do software development, that IS your asset, and you put it on a public service on the internet? NICE TRY ;)
  • Backup "script" is amateurisch, to. Use backup software.

A decent small startup setup could be:

  • 2 servers based on micro atc (16gb each)
  • Virtualiaztion on top as needed
  • A virtual server platform in a data center if needed.
  • Backup device as needed. Tape still rules.

Finished.

That is quite as decent as it gets. I run something like that, although this is a little biger on the prioduction side, but my infrastructure is basically smoething like that.

I personalyl woudl also be careful with any company thinking gmail is viable. They are note evena ble to enforce the privacy laws I am obliged to follow as eu citizen.

answered Jul 13 '11 at 21:20
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Net Tecture
11 points
  • github has private repositories, beside it, which startup has a desaster recovery plan? Not even big companies have it. – Vp. 8 years ago
  • @VP01: Didn't your mother ever tell you that just because your friends jump off a bridge doesn't mean you have to jump off a bridge? No one individual or company should be without some sort of disaster recovery plan. Period. – Alphadogg 8 years ago
  • @alphadogg: Which startup has a defined, tested and compliance disaster recovery plan? Yes, because if its not tested, it don't worth a penny. – Vp. 8 years ago
  • @VP01: How many have one? Few. Is that a reason to not have one? No. All my startups have had some sort of plan. – Alphadogg 8 years ago
  • alphadogg: good for you, it's not reality and not a negative point for google business email because they certainly have it :-) – Vp. 8 years ago
  • @VP01: They may have a continuity plan, but where's your continuity plan for Google's downtime or cancellation of service? Does their mail provide a bagging service should they go offline? Think it will always be up unchanged? How many "eternal beta" apps has Google cancelled or heavily modified in the last few years? It's one thing going in knowing the risks, it's another (bad) thing going in blissfully unaware of them. – Alphadogg 8 years ago
  • I like the downvootes. Dudes, you are here looking for advice. I am one of the guys that thnks i may need an investor if I ever decide to invest millions, becasue something like a 100.000 USD investment is something I pay out of my cashflow. Guess what - I would NEVER invest a cent with someone putting his core code on github. Take it as my opinion or not, but hey, you look for money here. – Net Tecture 8 years ago
  • @NetTecture: I actually upvoted you out of brotherhood! :) But, I would say it differently. There's nothing wrong with a private account at GitHub. The problem we agree on is when you think that because it is a big outsourcee, it cannot fail user(s). You have to look at your business as a machine, and depending on how badly you want it to live through bad times, you have to have redundancies from riskiest to least. – Alphadogg 8 years ago
  • Plus italso often is an example of people not thinking things through - quite often using the hoster is straight illegal due to privatcy laws that get ignored ;) – Net Tecture 8 years ago
  • @NetTecture, btw i did vote you +1, i don't have enough points to downvote :-). I think that you received two many downvotes because a) a lot of startus are in github, and until now, no complain b) with your local admin and local server you are not compliance as well with all privacy laws tha you, and me, as EU citzen are obliged to follow. to be compliance you will have to acquire some ISO certificates, an audit/compliance team and then.. you are not a startup anymore :-) – Vp. 8 years ago

0

I don't think it LOOKS amateur.

But, I also don't think people fully grasp what they give up when they outsource. Don't get me wrong, partially or fully outsourcing your infrastructure is not inherently wrong.

Basically, outsourcing is about removing the number of hands you control over your infrastructure, and to some degree, your business model (some online apps constrain you into their way of working). Yes, less hands means less direct expense, and that is the limit of the ability to think of some. Because they don't see the indirect expense of managing the managers, or the bigger potential expense that is taken on as risk.

I had a buddy have his data center go bankrupt and close shop, which not only took him offline, but also made him lose access to his colo'ed boxes for days. (BTW, his backup server was also in the colo. Ugh.) I have seen downtimes on virutal hosters cause another to almost go bankrupt for being down two days, which was a critical length of time to his business. I've seen a third company not be able to receive email from their 800 vendor contacts because their email provider implemented an aggressive spam policy that they did not want to roll back. They survived, but their reputation was dinged. Myself, in an older effort, I had used a backup service for keeping offsite backups of all my company servers. What didn't register was that the center was in New Orleans. Yep, Hurricane Katrina took care of that.

Amazon virtual servers (and like) are not cheap at all anymore, and severely underperform dollar-for-dollar. For the few hundreds a month you pay Amazon per server, you could get a colo box, fat bandwidth and get a sysadmin to help with the setup and occasional maintenance issue. You get to keep your data and your destiny.

OTOH, a law office I know waited two days for technicians to swap a motherboard on their in-house server. Yes, horrors exist on either side. That is why my strategy is to always use both redundantly.

What would look amateur (to me, as an investor) is someone who doesn't understand the pros and cons of outsourcing and has one-sided opinion of it either way.

answered Jul 14 '11 at 23:54
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Alphadogg
1,383 points
  • Your last paragraph was good, but you did show some bad examples with outsource, but how many admins forget to check if the backup is being done or the mail server goes down saturday night and they just realize it at monday. For startups normally they have one admin or some developer that do some admins tasks sometimes. – Vp. 8 years ago
  • The expression that comes to mind is "Don't throw the baby out with the bathwater". You can have a lack of discipline with both in-house and outsourced infrastructure. For example, for one startup, we use FogBugz. We setup an automated way to download the SQL Server DB to another site, just in case. In another startup, Uptime Robot (free!) monitors the website and the SMTP mail server, and SMSes us. The means are there for a startup, they don't take much time, but because people look at expense/profit, but not risk, they are exposed on all fronts. – Alphadogg 8 years ago

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