Why do Some Online Backup Companies Fail?
By Rob Cosgrove
People define “failure” differently. I define it like this: In order to fail you have to do three things: (1) set goals, (2) fall short of your goals, and (3) give up.
Having spent the past 21 years putting Remote Backup companies in business I have seen thousands of Remote Backup services reach great success. I’ve seen thousands reach a comfortable level, and maybe more importantly, I’ve seen many fail.
Online Backup is one of those kinds of businesses that you can run part time, spending very little time and money on it. Even a small business with 25 clients can bring in $2500 a month of easy residual income with very little effort.
It’s also the kind of business that you can spend a ton of money on, hiring staff and buying lots of equipment, and you can ramp it up to bring in millions.
If I have invested $250,000 in my business, and after a year I only have 25 clients paying me $99/month each, I would probably call that a failure. However, if I invest only $5,000 and end up with 25 clients at $99/month after a year, that might be a success.
Remote Backup companies fail for many of the same reasons other startups fail. Here’s my top ten reasons that some Online Backup companies fail.
1. They don’t write and follow a Business Plan, Marketing Plan, and Financial Plan.
These plans are literally the roadmap for your business. Sure, you probably have a rough idea of all of these plans in your head. However, they aren’t “real” until you write them down on paper. The most successful Service Providers virtually all have detailed and well researched Business Plans, Marketing Plans, and Financial Plans. Virtually none of those who fail have written, well researched plans.
2. They don’t take the business seriously.
Some failed Service Providers just don’t run their business like a business. They don’t devote enough time or money to it, or they give up too soon, or they get into it without adequate research and find out that it’s going to take more time and resources than they had hoped, and they just give up. The most successful Service Providers have a dogged determination to succeed, and are relentless in pursuing their goals. The least successful service providers treat their businesses like a part time hobby.
3. They don’t do proper research.
Online Backup isn’t for everyone. Some people fail because the owners don’t have the technical background to operate them. Some fail because they don’t have the sales skills to sell it. Some select the wrong target market. Some sell the service too cheaply, or for too much. Many get all excited by the technology and the potential and just jump into it with both feet and very little preparation.
Running a successful Online Backup business requires the same skill set as running any other successful business. You have to know how to set prices, how to handle money, how to budget, how to navigate the morass of government regulations, taxes, and reporting requirements. You have to know how to budget time, and when to hire employees.
People who don’t know how to run a business, and don’t learn quickly, stand a high chance of failure.
4. They don’t start with enough cash.
Cash is king. You’ve heard it before. You will need cash for sales and marketing, advertising, Internet, utilities, software, bookkeeping, professional services, taxes, fees, salaries, licenses, office supplies, computers and equipment, insurance, unforeseen expenses, the list goes on and on.
I’ll tell you something that happens around here quite often. Someone who wants to become a Service Provider will spend months looking around our website, emailing, and asking questions. Then, one day, he picks up the phone and calls us. “OK, I’m ready to make the leap. I’ve saved up enough money to buy the software, and I’m ready to start my business!” It’s clear that he’s about to spend all his startup capital on software – a big mistake. Then I have to consult with him on the other costs of running his business.
It’s great to have the software, and I like to sell it. But, I also want you to be successful, so I want you to have enough cash to both buy the software and pay your other business expenses – enough to grow the company. Otherwise, the software will end up on the shelf, and you will be dissatisfied with your experience.
I have written an online calculator that can help put all these expenses into perspective, which you can use to calculate your Break Even Point. That’s the point at which your income from your business matches your bills, and it is a very important bit of information to have. This also calculates your disk space and bandwidth requirements. Here’s the link:
http://remote-backup.com/kb/the-business/estimating-break-even-point-other-startup-costs/
5. They try to expand too quickly.
Some new Online Backup companies fail because they burn through their investment capital way too early, operating with unrealistic goals and assumptions. I have seen new companies spend hundreds of thousands of dollars on offices, equipment and staff before they had tested their market, their price points, or their support and deployment systems; before they had clients, and before they had contracts.
On the other hand, I have seen new companies gain thousands of customers in mere months. One company acquired six thousand new customers in sixty days, adding 500 new clients on some days. But these companies all had more or less guaranteed access to thousands of customers who had a very high potential for purchase. In a few cases like this, private school students were the customers. Some were corporations with hundreds of workstations. Some were colleges. Most of these successful online backup companies had contracts in place before they funded themselves.
Monitor your burn rate. Try to have enough cash on hand to last twelve months without sales. Spend money on expansion only when it is clear that you absolutely have to.
6. They don’t have the right talent onboard.
Online Backup companies are often started by technicians with no sales experience. They are often blinded by the sexy technology and assume they can just toss up a website and get rich automatically. So, they don’t pay attention to the fundamentals (Business Plan, Marketing Plan, Financial Plan, cash), and they are afraid (or don’t know how) to go out and SELL.
The software will run itself, and it is deceptively easy to install. In ten minutes anyone can install it and start doing online backups. But in order to succeed in the business, just like any other product or service, you have to GO OUT AND SELL IT. And that’s where many startups fail.
I have seen dozens, maybe hundreds of new Service Providers spend thousands of dollars and hours of time fine tuning their websites and hardware, testing the software, integrating it with the website, doing everything EXCEPT selling the service, delaying the important job of selling. Sales is scary for people who aren’t used to it. Rejection is just part of it, and sales professionals are used to it. Professionals just keep on going regardless. But for technical people with no sales experience, sales can be really difficult.
If you have no sales experience, and you want a quick start, partner with a sales person. Anyone can sell, but successful selling requires an acquired skill set. If you are satisfied with a slow start to your business, you can learn to sell. There are many good books on the market.
7. They select a software company to partner with based
solely on the software itself, or its price. New Online Backup companies who do not have access to good, solid, tested business, sales and marketing advice from their software partner fail at a much higher rate than companies who do.
So, they are often left with software that might be able to do the job, but a software partner with little experience in the business, who can’t give them the valuable business advice and resources that could make them successful.
New Service Providers should select a company with years of experience, with thousands of successful Service Providers.
I’ll tell you a secret, just between you and me. I’ve bought the software of all my competitors, and I have signed up with them as a Service Provider partner. So, I have logins to their online forums. I once went on the forums of all three competitors and posted the following question. “Does anyone here have more than 500 paying clients?” I got no answer. I waited weeks for an answer, then asked again with no response. I posted the question again in different terms, “What’s the most number of clients anyone here has?” I got answers to that one – 23, 10, and 14.
By contrast, Remote Backup Systems has Service Providers with 13,000 clients, 6,000 clients, 3,500 clients and more. It is very common for our Service Providers to have well over 500 paying clients. What’s the difference, then, between RBS and our competitors? Well, we think our software is better, but the main reasons are probably our experience in the industry, our willingness to pass on our experience to our Service Providers, and the willingness of our successful Service Providers to share their experience with new Service Providers.
Here’s an example of the kind of help you can get from RBS that you can’t get from our competitors.
New service providers sometimes get frustrated and phone me to ask why the business isn’t taking off, “I have a perfect website. The software is working fine. I’ve even sent a bulk mailing to businesses in my area.”
“How many pieces did you send in your mailing?” I’ll ask.
“Five hundred,” they’ll say.
“And how many phone calls did you get from that mailing?”
“Only seven!”
“And did you follow up by phone with all 500? Did you send that bulk mailing out to the same list several more times?”
“No. Was I supposed to?”
OK, here’s a quick primer on direct mail that you will not get from any of my competitors.
Seven responses to a properly designed first mailing of 500 pieces is about normal. It’s about a 1.5% response rate. Be happy with that. If you want more responses, send more mailing pieces. Direct mail is simply a numbers game. If done right, with the proper follow-up, you can count on the normal percentage of sales. There are many things you can do that can increase your response rate to as high as 5% and beyond.
The average sale requires six contacts with a prospect. A contact can be a mailing piece, an email, a phone call, an ad, or anything else that makes a prospect notice your company. Personally, I like sending four mailing pieces about a week apart, followed up by phone calls no longer than one week after a mailing have arrived. Address your mailing to an individual, by name, at a company. Do not address it to “President” or any role-based address like that.
How do you know the mailings have arrived? You salted your mailing with two of your own addresses (your home and office), and with two known bad addresses. When you get your two pieces back in the mail, most of the mailing has been delivered. When you get the bad addresses back (because you sent your mailing by first class post with a hand-placed stamp and hand-addressed envelopes, which increases your response rate by about .5% – 1%), all your pieces have been delivered.
You can start calling as soon as you get your first two pieces delivered to your address. One inexperienced caller can make about 60 phone calls a day (experienced – about 100), so don’t send more mailings than you can follow up on within a reasonable amount of time after the mailings arrive. You want to be able to refer to your mailing piece while it’s fresh in your prospect’s mind.
In the campaign I described here, you have four weeks to make phone calls, beginning about two days after the first mailing is sent. That’s 20 days at 100 calls a day, so one caller should be able to service a campaign of 2000 mailing pieces sent once a week, resulting in about 50 new clients in the first month.
These are average numbers based on many years of experience selling online backup services. Your results will vary, depending on many factors. The campaign I described here is by no means a complete description of what you should do. For example, we didn’t talk about testing your mailing piece or your price, or designing your phone script, or the many simple ways you can increase your ROI.
I simply wanted to give you an example of the kind of support you can expect from RBS, which you will not get from any other company.
You can ask RBS if Google Adwords works. We know the answer to that, in great detail. Ask us if radio ads work. Ask us to help you design the best way to sell your service to Dentists. Ask us how to double or triple your ROI for a particular campaign. Ask us whether it’s best to call on prospects in person, or if the phone is OK. We know these answers. Our competitors often don’t.
8. They don’t know when to take a break.
A failing business can suck the life right out of you. It can drain your personal finances, strain marriages, and give you a bad attitude. When something isn’t working, sometimes it’s best to stop for a while and re-evaluate. Take some time to study the fundamentals. If what you’re doing isn’t getting the result you want, change what you’re doing. Quitting for a while isn’t the same as failing.
I have Service Providers who tried the business way back in the 1990s and gave it up for ten years or more. On starting back up with a different business model in a different economic climate, they became successful.
9. They have unreasonable expectations.
It’s easy to get excited about this business. It’s new. It’s growing like a wildfire. People are talking about it. People are buying it in droves. Startup costs can be really low. You probably already have enough computer equipment to run it. The software that runs it is automatic. The residual income is high. Customers are loyal. There’s enormous profit potential that’s easy to calculate. You can lay out the groundwork for the business plan in an hour on a restaurant napkin. Maybe you already have.
It is easy to assume that customers will beat a path to your door as soon as you open it for business. This excitement can contribute to a lack of proper business planning by causing the business founders to have a “can’t fail” attitude. Don’t get blinded by the tech. Calm down and pay attention to the fundamentals.
10. Poor Management
Just like in any other business, managing a Remote Backup Service requires skills and expertise in many areas – accounting, finance, hiring, delegation, and leadership. It is important to monitor and manage costs and controls, and to be able to think strategically. You should know how to read a Balance Sheet and an Income Statement.
Most Remote Backup Services start out as very small companies – just one or two people who have to share the responsibilities of customer support, running the business, and handling the technology. It can become very busy, and some Service Providers make the mistake of allowing customer service to slip. This can be deadly for an online backup business, which traditionally relies heavily on word of mouth to attract new customers, and because of the nature of the business, must maintain a strong reputation for reliability and security.
Conclusion
Online Backup is a GREAT business to be in, especially today. In my 21 years in the business I have never seen a better climate for it. It is one of the least expensive businesses you can start, which has such a high profit potential. This is a business that you can start low and slow, with minimal risk, and expand into multimillions using the same software platform.
This is a low-risk, high-reward business unlike any other. But it is, nonetheless, a real business. Online Backup businesses, big and small, have to be run like businesses in order to succeed. Pay attention to the fundamentals. Do proper planning. Manage costs and controls. Give exceptional customer support. Work hard and smart, and don’t give up.
Happily, I see far more Online Backup businesses succeed than I see fail. I wish you success!
Rob Cosgrove is founder and CEO of Remote Backup Systems at http://remote-backup.com
