Posts Tagged 'Leasing'

May 2, 2008

Outsource IT – The Numbers Back it Up

With Skinman blogging about outsourcing (here, here, and here) along with Michael Miller blogging about the ease of leasing vs. buying, I had to jump in to say that the numbers show that their thinking is right on track.

Using database driving financial modeling software, I modeled a small internet-based business doing their IT infrastructure in-house versus using SoftLayer to handle the infrastructure for them. The benefits of using SoftLayer are eye-popping.

Here are the basic assumptions of the mythical company. There are 8 employees, 2 of which are founders who took out second mortgages on their houses to launch the business. First year sales are about $1.5 million. Business needs require 12 servers in two different geographic locations, housed in climate controlled rooms. Pricing out the servers and networking gear on Dell and eBay worked out to $71,509. This gear was financed with part of the proceeds from the second mortgages, booked to the balance sheet and depreciated. After three years, it was disposed of and upgraded with new gear costing $125,000.

Using SoftLayer changes several of these assumptions. By letting SoftLayer handle infrastructure, one less employee was required. There was no capital outlay for the needed 12 servers and networking gear. SoftLayer got the servers running in a couple of hours with no setup fees for a manageable monthly charge. This allowed less debt to start the business, and there were no long term contracts with SoftLayer if the business idea didn’t work out. There was no need to book the assets to the balance sheet, depreciate them, and upgrading them after three years involved a simple phone call so SoftLayer. No disposing of old gear or balance sheet write offs were necessary.

Consequently, this improved all the most important financial statement measures besides revenue, which remained the same in each scenario. Gross profit, EBITDA, EBIT, and Net Income all improved dramatically from using SoftLayer. Balance sheet credit worthiness, measured by things like equity and the Current Ratio among other things, dramatically improve. Finally, cash balances and cash flow almost double by using SoftLayer. Just compare the highlighted fields in this spreadsheet.

As they say, “your mileage may vary.” But odds are that you can significantly improve your financial performance by using SoftLayer to eliminate operating costs, depreciation, debt financing, and upgrade logistics related to your IT infrastructure needs.

-Gary

April 22, 2008

Buying a House vs. Buying a Server

Thinking of buying a house – don’t. I have been through the 7 layers of candy cane to get into the one I just bought. Not only did I have to search to find the right Real Estate Agent that fit my needs and my busy schedule, I had to search around for the right house, in the right location for the right price – sound familiar?

After all of that I finally found the perfect place, got my funds in order, and then I had to sign the rights away to my first and third born sons. Never in my life (or whole life for that matter) have I had to sign and initial my name to so many documents at once.

Yay, I’ve got the house, now I get to furnish it so I can actually live there. More. Fun. Now I’m out there shopping around for furniture, kitchen appliances, bedroom furniture, bathroom things and all that other good stuff.

I’m completely exhausted from all of the above and work on top of that. I now see where y'all (I’m from Texas, cut me some slack) are coming from when shopping around for a server. I miss my lease. The whole process was simple, efficient and for all encompassing purposes much much easier. Sure, a house traditionally appreciates in value with time and a server in all likely purposes depreciates with time and there is a difference between the two, however I did want to compare these two markets in my cool little blog here.

Leasing a server is a lot like leasing a house or apartment, of which after this whole ordeal I do very much miss. In a server and house lease you are not liable for any maintenance on either. We at Softlayer will take care of all of that for you, and the landlord takes care of the house/apartment if anything breaks. If something comes up then you can get out of the lease quite easily as well as the cost is 3-5 times less than actually buying outright. Leasing also takes less time. You can get into a lease in just a couple of days on a house/apartment or a server for that matter in just a couple of hours. Buying a house takes months of preparation, searching, getting funds in order, signing and moving in. On the other hand, buying a server can take days, weeks, and months even depending on your setup, co-location facility and how fast you can get it into a live production setting. There are literally a million different variables that go into both of these equations for time, but this is just generally speaking. I’m sure there are many of you out there that can buy both in a matter of minutes and have everything setup and running just as fast.

In the long run my house will in all probability appreciate in value so it will be worth it – aside from the hassles and giving up my first and third born sons. However buying a server and co-locating it somewhere for years will likely depreciate with value as technology changes so rapidly in this day in age. Likely your old servers will not work as efficiently as new technology comes out and will eventually become obsolete. In the housing market my house will be around and habitable so to speak (depending on how rough I treat her) for decades to come. However as I pointed out earlier they are very different markets but the lease/buy theory is still the same.

To sum it all up – don’t buy, lease, you’ll thank me later.

-Michael

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