Why the cloud is perfect for startups

There's an old joke poking fun at startups' lack of personnel. Some clients come in for a meeting and are greeted by a secretary, she takes their coats and they sit.

She says the owner will be along shortly and leaves the room only to return two minutes later hand outstretched. Hi, I'm the owner, she says.

Historically this near-complete lack of human resource has been one of the major barriers to small businesses. Not only did it inhibit progress, but it was also abundantly obvious to partners and clients that you were a tiny business, not an established entity, and therefore desperate for their patronage.

Today, it's less clear. The internet, first, and now the cloud have wrecked our ability to tell, within reason, if a business is big or small just by its output. One-man and one-woman bands can achieve baffling amounts of work in a normal working day.

Xavier Colomes, an online marketing consultant trading under the name Conversion Garden, says his businesses could not function without the cloud's properties, which allow him to access work in any location and all but prevent catastrophic data loss through hardware damage, theft or loss.

He explains: "I split my time between the UK and Spain, and I simply wouldn't be able to run my business without cloud-based tools. They underpin the vital processes that make my business work.

"I use an online time-tracking system for project management, I store my business-critical files in Google Drive and Dropbox. I also use cloud-based accounting software, QuickBooks Online. It allows me to access my invoices and estimates instantly, gives clear visibility of cash-flow status and what I can do to improve it, and also helps me collaborate with my accountant.

"There are pragmatic benefits too. My laptop is basically the portal to my business, but if I lost it or if it was stolen, my revenue and client relations wouldn't be in jeopardy because they have zero reliance on hardware."

In the very earliest days of the cloud, people worried about security, they still do to a degree, but chaperoning a precious laptop home on the train feels a lot more exposed than housing all your data in secure and anonymous server rooms ruled by large and serious systems and processes.

Most startups have weighed these two scenarios, or versions of them, and decided the multinational company with layers of management and a large security budget is probably more reliable than an individual meandering home after five pints of lager.

Dropbox

Security concerns aside, the life-giving properties of the cloud, its ability to bring together business operations at a single access point, have triggered a huge escalation in new businesses. Politicians will tell you the meteoric rise in startup numbers is down to them, but really it is the cloud.

And how. According to Startup Britain, 581,173 businesses were founded in 2014, sharply more than the previous year?s 526,173, which in turn rocketed passed 2012's 484,224. According to Companies House, in the four weeks of February this year alone, 51,596 new companies burst into being.

"Perhaps the key benefit of the cloud is its ability to level the playing field. By removing much of the initial up-front costs, the cloud allows small and medium-sized businesses to compete with their larger rivals and in some instances to surpass them," says Ian Stone, managing director UK and Ireland at Anaplan, a cloud-based business planning platform.

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"With less infrastructure and fewer internal processes, startups and SMEs [small and medium-sized enterprises] have always been considerably more flexible and agile than their market-leading competitors.

"In contrast, larger enterprises retained their dominance by relying on infrastructure, scale, access to multiple markets and superior technology. The arrival of cloud computing has eroded these advantages, so it's no surprise that large companies are beginning to become concerned."

The cloud is good for security and it certainly helps startups grow, but it can also facilitate the sort of administration that prevents them falling over too. Finance and accounting are two enduring bugbears for entrepreneurs down the ages and, while accounting is still not fun, it's a lot easier than it used to be.

According to Rich Preece, country manager at Intuit UK, cloud-based financial management software is about to take off in a big way. He cites statistics from the International Data Association forecasting that, by the end of next year, half of all SMEs will be using it.

"The insight you can get from dedicated cloud accounting software means SME owners can also make strategic financial decisions, such as looking at a healthy pipeline and deciding it's time to pay staff a bonus or plough some more investment into R&D," says Mr Preece.

"At the other end of the scale, they could avoid a nasty surprise by realising they need to bring in some new customers quickly before it's too late."

Cloud use by smaller businesses

Sharon Davidson, founder of Aresko, which provides consultancy services to the NHS, says settling invoices in a timely fashion is vital to her cash flow, and that cloud-based business and e-invoicing platform Tradeshift provides assurance in this area.

"Previously I would have to raise the invoice, send it in and sometimes chase it. Whereas now, I raise the invoice, it goes by the cloud system and I have all the updates I need. Messages come in, signed off, paid and it's perfect," she says.

Ms Davidson's example shows it's not just super-high-tech companies that can benefit from the cloud. Old business models work just as well, including bricks-and-mortar high street shops. Number Six, a high-end men's fashion retailer based on Brick Lane in East London, swears by Vend point-of-sale and retail management software.

Owner Jake Hardy says: "The best thing about Vend, for us, is that it is cloud based and therefore accessible from anywhere I am, whether at home, on my phone or on holiday. I can quickly oversee what we have sold and what our margins are in real time. I can also quickly and efficiently restock products."

With cloud technologies such as these taking the strain off startups, it's anyone's guess how many new businesses will be encouraged to pop up in 2015, certainly way over 600,000 if the current trend continues. As cloud technologies improve and more people adopt them, the playing field between newbies and the big dogs just gets more even by the day.