SECOND STAGE EXTRA
From insecurity to Secure-24
IT firm's founders overcome rocky start; 2011 revenue hits $40M
Click photo to enlarge
CEO Matthias Horch (left) and COO Volker Straub formed Southfield-based Secure-24 after plans collapsed for the business they had come from Germany to launch.
Photo: GLENN TRIEST
Although cloud computing is an expanding industry, experts say companies should take a number of pros and cons into consideration:
• Cost: Using the cloud can save as much as 80 percent of a company's IT costs, estimates Michael Simon Bodner of Ann Arbor-based Bodner Consulting LLC, by eliminating the need to hire employees, build a data center, purchase equipment, pay for software licenses or do upgrades.
• Flexibility in budgeting: The savings from the cloud's pay-as-you-go model frees up capital otherwise spent on a large IT infrastructure investment." Companies can take that capital and (put the money toward) more projects in other parts of their business," said Chris Wolf, vice president of research at Stamford, Conn.-based Gartner Inc.
• Global availability: Data managed under a cloud contract can be accessible 24 hours a day, seven days a week anywhere in the world. "When you buy the cloud contract, you are buying what is called a service-level agreement, and you can get very high availability," said Bodner.
• Agility: If a company needs to spin off a new service to support a business or customer, it can do that extremely rapidly in the cloud -- sometimes within minutes, depending on the product, said Wolf. "(With) regular physical infrastructure, it might mean ordering a server, installing software, testing everything out, and (you can) be online six weeks later," he said.
• Cost: Depending on their data habits, some kinds of customers find they spend more for cloud than for traditional IT services. "E-mailing might be really cost-effective in the cloud, but the customer portal that requires a lot of customization might cost more to run in the cloud," said Wolf. "At the end of the day, it's having management, backup, archive (and) disaster recovery in place. Folks just look at what it costs but don't always look at all of those add-ons."
• Complete reliance on the Web: If a company has a single connection to the Web and it goes down, the company basically is out of business until connectivity returns. Companies need at least two connections. Bodner suggests having a wireless hotspot, such as a cellphone that can connect to the Web, as well.
• Potential loss of data: Ensure the hosting vendor is solid and doing all necessary backups, said Bodner. "Make sure you are set up in two data centers in two separate locations to survive one data center being hit by a hurricane or something, which is a standard feature the really reputable guys would do for you," said Bodner.
• Security: Make sure company data is encrypted and password-protected so it's available only to the people you want accessing your data.
• Outsourcing issues: Although many cloud providers want to handle everything for a customer, including management, backup, disaster recovery and security, making those types of agreements has a company effectively outsourcing its entire IT function. "At that point, you have the same lock-in concerns and high exit costs that you have with any other outsource model," said Wolf, who said that most of his clients use cloud services tactically for a specific use.
-- Laura Blodgett
In 2000, Volker Straub and Matthias Horch came to the U.S. on behalf of their employer, TDS AG, to launch operations for the IT and SAP systems integrator headquartered in Neckarsulm, Germany, and now owned by Fujitsu.
Within six months of their arrival, the dot-com bubble burst, and TDS -- which builds information systems from various hardware, software and networking sources -- pulled out of plans for a U.S. rollout.
But instead of returning to Germany, Straub and Horch made a bold decision.
"We thought, 'Why not start our own business?' " said Straub.
The partners decided to give themselves three months to land three clients, to determine whether the business was viable. It took five months, but the entrepreneurs managed to sign three clients.
Fast forward 12 years, and Southfield-based Secure-24 Inc. is a company with $40 million in 2011 revenue and 270 employees, specializing in managed hosting, private cloud computing and applications for large enterprise and mid-market companies. The "business critical" apps depend on the industry and can be anything from financial transaction systems to reservation systems.
Secure-24 has established itself as a competitor to big vendors such as IBM Corp. and Hewlett-Packard Co. by offering flexible customer service options, investing in the right kinds of secure infrastructure, and adjusting products and services to match specific customer requests, the founders say.
Secure-24 plans to triple its revenue and number of employees in the next five years, with projected revenue up this year of $50 million. The company plans to hire an additional 38 employees by first quarter 2013.
Secure-24's current roster of 150 clients mainly comprises companies in the $500 million to $10 billion range with high compliance and security needs. The industries range widely, from life sciences and manufacturing to financial and insurance, and include companies such as Ford Motor Co., Life is Good Inc., Macmillan Publishers Ltd., and Cristal Global.
The company hosts servers and stores data in weatherproof and highly protected centers. Individuals making site visits are granted access only after an iris scan.
When Straub and Horch officially launched the business in October 2001, they relied on their personal savings and set a goal to grow the business as cost-effectively as possible. Straub swapped his house for a less expensive condominium, and Horch -- who was single -- moved in, sharing space with Straub and his 2-year-old.
"We were very dedicated," said Straub, who serves as COO of Secure-24. "This was our passion, but it was very difficult."
Sept. 11 hit shortly before the partners incorporated, which threw the business world and the economy into a tailspin.
"Looking back, it was probably the worst time (to launch a business)," said Straub. "We couldn't pay ourselves a salary and rented data space. We were working on computers all night and meeting with clients all day."
Another setback occurred when one of their clients, a marketing firm in Troy, went out of business one month into their contract -- after the pair invested $50,000 in equipment to run the account. Straub and Horch, both German, didn't have access to a U.S. credit line and had paid for the equipment with the last of their personal savings. But the entrepreneurs knew they could use the equipment for additional clients and doubled up on their sales efforts.
"We made a lot of mistakes, but the trick is to learn from them," said Straub. "Why didn't I do a credit check on that company? Now we do. All you want (when you are starting out) is the client."
Luckily, the partners' evolving business dovetailed with a growing movement toward cloud computing, technology that allows for more efficient computing by centralizing storage, memory, processing and bandwidth.
The combination of the Internet and the cost benefits of large data centers gave birth to the idea of establishing companies that offer specialized hosting services, said Michael Simon Bodner, of Ann Arbor-based Bodner Consulting LLC, which provides high-level technology and strategy consulting.
"The business model emerged because the Internet was there, and (companies like Amazon) were building these large data centers that would include very high-speed communication and backup duplication of data. ... They could run your applications in their data center and charge you a rental fee, like a utility bill."
The tipping point occurred two to three years ago, said Bodner, when it became clear this model was good business.
"If you're a CIO or CFO sitting down with someone (on your staff) who says my computer needs will expand, you'd have to be crazy to go build a new data center," said Bodner. "Cloud computing is not really an 'option' for most people, it's an imperative, and the companies that are moving to it earlier are moving their competitive advantage and cost advantage."
Worldwide server revenue grew 7.9 percent in 2011 to $52.7 billion, according to research by Gartner Inc., a Connecticut-based IT research and advisory company. Gartner predicts the cloud computing industry will be pulling in $130 billion by 2013.
Bodies and bandwidth
Hiring its first employee was one of the first big milestones for Secure-24, enabling Straub and Horch to separate their sales efforts from the actual IT work.
Another milestone was moving into their 20,000-square-foot data center in Southfield in 2003. Now the company had a place to take clients to tour, and growth took off.
"Companies could see that if they were investing in themselves, (Secure-24) would invest in them, too," said Joe Szmadzinski, Secure-24's chief strategy officer.
By the time Secure-24 grew to 50 employees, most customers were feeling confident in the vendor's abilities. In 2007, Secure-24 built a second data center in Plymouth.
Even the 2008-09 recession was a game changer for Secure-24 due to the rampant shortage in available capital coupled with a strong labor market.
"CIOs couldn't get $20 million for new boxes, but they could amortize it over time," said Szmadzinski. "It was beneficial to us both."
Forty percent of a company's IT costs lie in infrastructure, said Szmadzinski, which is where Secure-24 comes in.
"To build the security system, we have costs of millions of dollars that you as a client don't need to invest," said Szmadzinski. "You pay $1,000 to $2,000 a month, like a regular phone bill or other utility service. You buy a pool of service and run on our servers."
For the typical company, this package-based approach covers services such as emailing, billing and receivables, allowing companies to save 20 percent to 50 percent of their IT costs by outsourcing, according to Szmadzinski.
Another of the company's guiding principals is absolute access for clients, for example, understanding that there are critical times a client can't have scheduled maintenance, Straub said. Plus, every client has Straub's cell phone number, just in case.
Les Tolley, director of IT at International Automotive Components Inc. in Southfield, selected Secure-24 as a vendor when IAC spun off from Lear in 2007.
"We knew it was going to be a fairly chaotic exercise, and they seemed to be really flexible on working with us," said Tolley. "They were cost-effective, as good as anyone else we looked at. They were hungry for the business and went the extra mile."
Straub admits that five years ago, Secure-24 couldn't attract a $10 billion client, but now its name recognition through partnerships with EMC Corp., SAP AG and Oracle Corp. makes landing clients in that range much easier.
Another milestone was reached last year when Gartner Inc. included Secure-24 as an up-and-coming small provider on its "Magic Quadrant for Managed Hosting" report, which recommends vendors in the field.
Secure-24's strategy for future growth includes landing larger clients and growing existing clients by becoming smarter about clients' industries, the founders said.
Quarterly customer satisfaction surveys have helped Secure-24 continually improve its services. For example, many clients noted on the surveys a desire for Secure-24 to handle the Oracle Hyperion Financial Management application.
Secure-24 recently moved into a 50,000-square-foot office space on Northwestern Highway, placing all employees under one roof again, and is considering opening a data center in Las Vegas. The company runs a data center in Plymouth, two in Southfield and others in Nebraska and Arizona. Bala Rajaraman, president and CEO of Novi-based Marvel Technologies Inc., which provides hosting and outsourcing services, said he believes there is room for many vendors in the growing SAP market.
Since the automotive industry has picked up, Rajaraman said, the local hosting and outsourcing market is doing well. What's more, he said the opportunities seem endless, since every industry can benefit from SAP.
Bodner predicts that in five years, the cloud will emerge much more like a utility service.
"Everything will be a discussion of pennies per minute for CPU time and pennies per month per gigabyte for a month of storage. It will be as simple as saying, 'We're moving from IBM to Google,' and they'll move all your stuff and have it up and running in 24 hours."