Last week we talked about expectations that companies usually have about moving to the cloud and whether these expectations are eventually met afterwards. This week, as promised, we’re publishing an interview with a person who comes from a completely non-cloud area and is running now a 100% cloud-based company. He’s going to share his thoughts on the security issues, advantages and also disadvantages of the cloud as he sees them.

So, please meet Patrick Wills. Patrick Wills is the founder and managing director of Earlymarket LLP based in London, UK. Earlymarket specialises in incubating early stage companies and provides the capital, management expertise, financial control and high tech workspace in central London.

Olga Annenko (OA): Hi Patrick, first of all thanks a lot for the chance to interview you. Tell me in a few words what it is exactly what you do.

Patrick Wills (PW): Hi Olga, sure, you’re very welcome. So, in short, we run a seed capital business, i.e. we seed technology companies. In other words, we create a full corporate identity for very young companies.

OA: Can you call yourself a cloud-born company?

PW: Yes, absolutely, we started using cloud-based software as soon as we started the company. I would say, it’s more that we will always look for a cloud-based solution first. The simplest example is an accounting system. I wouldn’t think for a second about using a downloadable kind of system, I would always rent a cloud-based service. We use Xero, for example.

Although, speaking of Xero, they would actually be rather a good example of what can be annoying about the cloud. Their feature release speed is terribly slow. I’m not sure if it would have been worse if it weren’t cloud-based. I mean, you know, one of the benefits of a cloud-based software is that you get constant upgrades, all the time. It’s rather a strange thing when it doesn’t happen.

OA: Pardon, you said that it’s terribly slow. You’re still talking about a cloud-based solution, aren’t you?

PW: Well, I’m just saying that normally I would expect quite rapid system upgrades. So, if you take something like Slack, for example, they bring out new features more or less constantly. And that’s one of the advantages of a cloud software, you always have the latest solution. Xero is, unfortunately, not that fast. On the other hand, it’s definitely faster than any software that is installed via a CD or DVD.

Getting back to your question, yes, we are a 100% cloud-based company, and by that I mean not only software applications that we use. All our services are in the cloud as well. There is literally nothing on-premise now except for some graphic design programs that need very high processing.

OA: I know that you used to work in a field that was completely devoid of any cloud. What was it exactly and how come your previous company(-ies) didn’t use anything “as-a-service”?

PW: Well, I come from a banking sector, I used to work at Banque Paribas (now BNP), Deutsche Bank, and others. It was completely, utterly against the culture to use anything from the cloud, you weren’t even allowed to use Google Docs or Dropbox. Mainly, because of security risks.

OA: Ah, now we’re touching upon a very interesting topic:) I know that security risks that cloud supposedly brings with itself are among the number one issues for German companies. How do you see this?

PW: Frankly speaking, I cannot share the concerns at all. In my opinion, this way of thinking – cloud is tantamount to security risks – is sort of an illusion for a company where you have an IT department of 50 people in-house. I mean, my last company spent 50 million dollars a year on IT. In comparison, Amazon Web Services have got 50 billion dollars at stake on cloud. They have a far greater IT risk in a way then some in-house IT team, and yet they bet on cloud fully. So, the idea that by not going to the cloud a company is going to be more secure and safe than using a cloud-based service is at the very least unreasonable.

As a matter of fact, my opinion was that people should get it the other way round: If you don’t mind taking risks, don’t use the cloud. If you don’t want to take risks, use the cloud. That is the Amazon’s inverted way of thinking. I think if I were running the company I would get to the cloud as much as I could. I believe security is completely misunderstood. Vast proportion of security risks is coming from employees’ sabotage. Not from vendors, and procedures, and cloud software.

OA: Having come from a completely non-cloud area and now running a 100% cloud company, I guess this means by default that you see a huge amount of benefits in the cloud. Do you see then any disadvantages?

PW: Well, when our servers go down, we might as well go home, we cannot do anything. But, if that is changed as well… I don’t know about Germany, but in the UK there has been ongoing discussion over the past 10 years that Internet should be considered a utility along with water, electrics and gas. What that means is that there will be a little bit of regulation in terms of, well, uptime. That is actually actually already happening, although by no means already done. Yet we personally experience very very very low downtime in London.

But anyway, yes, if we have a little bit of downtime, we are completely, utterly stuck for the few minutes we get no Internet – even our VOIP phone system stops working. So, everyone makes themselves coffee, comes back and then it’s running again.

But that is obviously an issue for some companies like banks, they can’t have that kind of exposure. Only yesterday Google Cloud Computing went down for 18 minutes and it has caused headline news. The major cloud service providers take such incidents very seriously and I would guess that incident rates are falling.

OA: So, this is one disadvantage – if there is no Internet, there is no work if you use only cloud-based software and systems. Kind of makes sense:) Anything else?

PW: Well, the other issue has to do with cost management. These cloud-based systems are very very good when you’re small. But with a lot of them costs really ramp up when you get bigger.

The pricing strategy of most SaaS providers is based on the number of users. We actually did a bit of a consultancy for a company who wanted to have a cloud-based Intranet system. The solution they found would have cost them 25$ per month / per user. Now comparing us with them – we’ve only got 10 people, out of whom only 5 would have needed access to the Intranet. This would have cost us 125$ per month. But that company has 150 potential users for the Intranet. So, they would have ended up with $10.000 – 20.000 a year mark for a bit of software.

So, I think this is another disadvantage of cloud-based software: If we were to grow quickly from 10 – 100, we would probably have had a cost problem with some of the systems we use now. Some of them get very expensive when you have a lot of users. I mean Slack is a fantastically handy tool, but if I had to pay five grand a month for it all of a sudden, I’m not sure I would necessarily keep it.

OA: Actually, this is exactly what some of the latest surveys found as well. One would think that cloud-based services are cheap, but it often turns out to be quite the opposite. Although, truth be told, the user-based pricing models are only a very little part of the overall cloud-related costs issue for bigger companies. For smaller companies, it is actually quite crucial indeed. Ok, any other disadvantages?

PW: Well, we do have some small issues with our cloud web servers. In particular, there is a software that we really want (to allow users to enter markdown instead of HTML in forms), but it requires Node.js version 4.2 or higher and our cloud host will not upgrade the package as it is a shared server. So, we can’t use the software. I mean in our case there is only one solution: we are just going to have to run our own dedicated cloud server. In fact, we are doing the transition this week to a DigitalOcean Droplet.

But that’s what can happen sometimes – that you don’t quite have the right version and then you’re stuck if you’re using the cloud software. But then you can always rent your own machines via DigitalOcean, Heroku, AWS, Google etc..

One more negative to mention would be the web-browser interface. It isn’t ideal for everything, e.g. it’s pretty hopeless for some graphics editing. So, anything where you have a very complex, very “thick client” requirements, like editing – it’s just not going to work in the cloud.

But that’s about it. I cannot think of any other disadvantages, to be honest.

OA: Ok, so, to recap, the cloud is not so black as it is painted:) Quite on the contrary. I mean of course it depends on the size of a company and its internal policies, but your example shows that being 100% cloud-based can perfectly work out for SMBs, and cloud has by far more advantages than disadvantages. No doubt bigger companies will struggle with it a bit more; first, because if their not-cloud-oriented way of thinking, secondly, because for them it is usually not about building something from scratch in the cloud, but moving a whole lot of things from on-premise to the cloud. Which can be huge in its complexity. But it can be a very different story for companies who are either small or are growing now towards medium and enterprise sector in an organic way. They can safely build themselves upon the cloud.

I also enjoyed your comment about security – it’s not the cloud that is dangerous, it’s employees’ sabotage. Definitely an idea worth exploring some more.

Thank you for the interview Patrick.

About Earlymarket LLP

Earlymarket LLP is a family office specialising in incubating early stage companies. As investors, we provide management expertise, financial control, high tech workspace in central London and, of course, the capital. Recent investments are in iotera.com, off3r.com, joblab.com, helipaddy.com, coposition.com and others.

Patrick is the managing partner with a background in institutional and hedge fund investing and interest rate derivatives trading and structuring.

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