Business scalability is one of the main reasons private equity portfolio companies migrate to the cloud, with many under pressure to achieve 30-40% growth each year.
However, we often hear organisations find the growth of their cloud costs outstrips that of the business. Operating partners find themselves pushing water uphill. On top of that, availability becomes a problem and performance fails to deliver a great user experience.
This is highly frustrating, because it’s clear that cloud is essential to stay competitive in the current climate while continuing to foster the innovation on which bottom line success depends. It’s also bad news because valuations are based on a multiple of earnings before interest, taxes and amortisation (EBITA). Cloud is operating expenditure – just like salaries and rent – and it has a material impact on valuations.
In tough economic downturn, private equity portfolio companies are shifting their focus when it comes to cloud operating expenditure, licensing costs and long-term cloud commitments. Analysts Forrester are predicting 2023 will be a year when cloud cost-containment will be a top priority, with pressure from the C-suite for vendor-neutral approaches to management and optimisation.
And with good reason. In the Flexera State of Cloud Report, 66% of respondents reported higher-than-expected usage. On average organisations said they wasted 32% of their cloud expenditure. Now, you might think, something’s not adding up here. Wasn’t the promise of the cloud supposed to be cost efficiency, scalability and performance?
We hear you! And all of the benefits are 100% true. But to realise the full potential and promise of the cloud, your cloud architecture needs close attention, or optimisation. In most cases, that means bringing in external expertise to diagnose the source, or sources, of the problem and help you increase your profitability.
What’s causing cloud over-spend?
From our experience, there could be several reasons. From poor initial sizing to weak working practices and being unable to simplify cloud management complexity.
In their early phases of cloud adoption, companies often focus on product delivery, and as they migrate to the cloud, their engineers spin up multiple instances without coordination or real strategy. Poor housekeeping, over-engineering for gold levels of performance that are not required, and steps to compensate for bad performance are common. Unfortunately, that means embedding bad habits like using extra server capacity to compensate for badly performing software and bottlenecks.
If your engineers’ poor choices or lack of strategy leave you with a sub-optimal cloud architecture for workloads, you will always endure higher costs. Cloud costs are very difficult to manage in the context of frequent, ongoing changes to software, growth in data and new cloud technologies. Auto-scaling tools are only as effective as the applications they support, leading organisations to spend more on capacity to be certain of meeting demand. All while the bottom line suffers.
So, what’s the approach?
One of the most common approaches our private equity clients tried in the past is reducing cost themselves through discounts, changes in technology or the use of different cost-tracking or cloud monitoring tools.
At first glance, this looks like a reasonable approach. But in most cases, new automated tools and discounts can actually encourage inefficiencies. They will of course address short-term issues, but what about the long-term? This solution isn’t sustainable, especially when the cost of new software increases with time. Also, it only focuses on the pricing aspect, forgetting about scalability and performance.
What’s important instead is to address the root causes of all three challenges at the same time. More often than not, engineers have to face up to the fact that most inefficiencies are in the software created by their teams. This can prevent the future realisation of optimisations, unless you get the team involved from the start of the development lifecycle. After all, people drive change within the business, not technology in itself.
So, instead of going for the easy tech discount option, deploy a holistic approach at every layer of the technology stack with the help of hyperscale cloud consultancy experts like Capacitas. For more than 20 years, we have shown IT teams it’s possible to fix performance issues without boosting capacity, while ensuring scalable, cost-effective infrastructure.
For example, using our proprietary tools and methodologies, we helped a major telecoms provider make an annual saving of £26m p.a. by safely reducing cloud capacity.
For Domino’s Pizza, we assessed and safeguarded their online platform performance, enabling 39% growth in annual revenue and an increase in order-handling capacity of 141%.
With the help of the right partner who treats performance, cost and demand metrics together, organisations can optimise all essential attributes, without any of them suffering, powering the bottom-line growth.
The magic three – cost, scale, performance
At Capacitas, we fix cloud costs, scalability and performance at the same time. By pinpointing and ironing out inefficiencies, we deliver performance and scalability at a lower cost, allowing under-pressure operating partners to meet even the most aggressive growth targets.
As your expert consultants, we ensure your cloud infrastructure runs as efficiently as possible, helping you nurture efficient teams too by involving them at every step to ensure they pick up new skills and confidence for the long-term.
If you are involved in running a portfolio company facing these challenges and want to see big boosts to performance, with cloud risk managed and costs controlled, then speak to one our team today.
Capacitas counts several private equity firms among its clients, such as Silver Lake, Cinven and Permira. We can help you too. Please contact our cloud economics team via https://www.capacitas.co.uk/book-a-diagnostic-session and we will get back to you immediately.
