Cloudy With a Chance of Rain-Making

One of the biggest hassles in exporting goods to a foreign land has long been getting paid. For years, small and medium-sized exporters tried to obtain letters of credit from U.S. banks guaranteeing they would get paid on a timely basis, but it was expensive and time-consuming—and precious few banks wanted to be in that low-margin business. Many exporters made the gut-wrenching decision to just ship their goods and simply hope they would get paid quickly.

Avery Brewing, a 21-year-old maker of craft beers based in Boulder, Colorado, has solved that payment problem by taking advantage of cloud computing, the poorly defined but hugely powerful notion of placing much of a company’s IT infrastructure and software needs in the hands of large providers ranging from SAP and IBM to Amazon.com, Salesforce.com and NetSuite.

Avery did created an Enterprise-Resource Planning (ERP) system in the cloud, relying on SAP software customized by Orchestra Software, a specialist in the brewing industry. That system was aimed at running the overall business—not exporting. However, it has come in handy when selling brewskies to the Japanese and Swedish markets—and even a scientific research station in Antarctica. “One of the big features that our ERP system will allow us to do to expand our global footprint is a customer web portal that our international customers use to place orders directly,” explains Conner Helton, the company’s assistant controller and architect of its IT systems. “They can track the status of their shipment, see if there are any changes and also make payment through that system. Getting international payment within a week’s time is almost unheard of.”

The Next Frontier
Welcome to the next chapter of how small- and medium-sized enterprises (SMEs) can compete globally. Just as the fax machine transformed doing business internationally and then email transformed it again, a new wave of technologies is giving smaller companies the ability to go places and do things they would never have dared before. Some of the new tools are not cloud-related. Avery Brewing, for example, relies on Google Translate to help communicate with non-English-speaking customers and Google Earth to study how specialty malt crops are growing in Canada. Social media tools, meanwhile, allow small companies to reach distant customers and lure them to their websites. Data-mining tools provide new insights into what customers want.

However, the cloud does appear to be at the center of growing competitiveness among small and medium-sized firms. Being able to expand a company’s IT infrastructure quickly and to cherrypick precisely which functions are needed allows CEOs to take on global risks they might not have once contemplated. Flexibility in “scaling” is particularly important for smaller companies because they can’t always anticipate a surge in orders. Using the cloud, “you can scale within hours, not months,” says John Mason, IBM’s general manager of the midmarket.

To be sure, CEOs are not taking the complete plunge overnight. Many appear to be testing one or two functions at a time. Sono-Tek, a $10 million-a-year maker of ultrasonic liquid atomizing nozzles—that earns 60 percent of its sales internationally—has moved its customer-relationship management (CRM) system to the cloud. CEO Christopher L. Coccio, says the company, based in Milton, New York, keeps analyzing and reviewing to decide which function will be next. “It’s going to be an organic evolution as opposed to saying, ‘Tomorrow, Sono-Tek is going onto the cloud and that’s it,’” he explains.

The array of SME’s doing business internationally is fabulously complex. Some companies export manufactured goods, relying on distributors and partners. Others are professional service firms that deliver engineering or legal services. Still others are retailers of everything from beer to shoes. Some are just starting out on their global strategies, but others already have graduated to opening offices, plants and stores in foreign lands. Certain companies have sprung up precisely because of the power of the cloud.

One small company called Music Mastermind, based near Los Angeles, sells its musical game applications in 154 countries because it relies on IBM’s SoftLayer hosting platform. Its business model would not be possible without the cloud. It’s increasingly clear that the cloud, when used wisely, can make SME companies more competitive than ever against larger rivals. “There’s no question [that] the cloud levels the playing field,” says Laurie McCabe, co-founder and partner in the research firm SMB, based in Northborough, Mass., which specializes in the IT needs of smaller companies. “They couldn’t possibly do all this on their own. They are not Coca-Cola. They don’t have zillions of tech people to evaluate things.”

McCabe says one key to using the cloud is to develop a go-global strategy and understand how the technology can support what the business is trying to achieve. The functions that touch customers or employees in multiple geographic locations are often the first to move to the cloud, such as marketing, CRM, human resource systems and employee collaboration tools.

Clouding Up Data
One source of confusion is the terminology that surrounds the cloud. What is a “private cloud” versus a “public cloud” versus a “hybrid model?” The best rule of thumb is that a private cloud refers to the decision by a company to locate servers, software and data in a gated area in a host company’s data center. It is walled off from other systems and locked with a key—either literally or figuratively. But it is considered a public cloud if a company’s IT assets are located in servers that also help other customers. That may be cheaper, but it implies less security and privacy.

The term “hybrid” is what the vast majority of SME companies seem to end up with. They shift some functions off to either public or private clouds while retaining their own IT systems for older, legacy applications. “Most companies are in a hybrid state and I think they will be there for a long time,” says SMB’s McCabe. “There are so many kinds of solutions coming to the forefront that help you streamline your business, manage performance or offer broader [types] of analytics that CEOs say, ‘We’ve got to make this function in the business more effective. But we don’t have anybody in house to stand this up and manage it day-to-day.’” That triggers a decision to rely on cloud companies to buy, install and service the necessary hardware and software.

Major IT companies are chomping at the bit to expand their cloud services in the small and medium-sized business segment. SAP, the big German software company with $100 billion in sales, once had a reputation for installing its ERP systems in mostly large companies but now says that 70 to 80 percent of its 200,000 customers are in the SME segment. Kevin Gilroy, senior vice president and general manager of the company’s small and midsize segment, says one key to understanding how the little guys are using his company’s services is that they no longer have to make capital expenditures to build IT systems to support their strategies in Vietnam or the Middle East. They can convert to paying for these services on a monthly basis, which makes them an operational expense and helps give the bottom line a quick lift. “The consumption of technology is becoming more retail-like,” Gilroy says. “They don’t need engineers and architects to design systems and then other professionals to run them. They can buy it by the drink and deploy it in a consumer kind of way.”

Just as SAP bought the online business-to-business trading platform Ariba to help SMEs buy and sell products, IBM has bulked up its portfolio of offerings by putting forward one-stop shopping. It bought SoftLayer in July 2013 and is rapidly expanding the hosting service to 40 data centers around the world. A customer’s traffic is free and runs through a closed, high-speed communications network, guaranteeing security. IBM also bought Cognos, a company that offers analytical tools, and it is rolling out those services to smaller customers. As with SAP, most smaller customers rely on middlemen to customize IBM’s offerings to their specific industrial and geographic needs.

All the computing power that the giants have put in place is what allows Avery Brewing’s Helton, a veteran of Lockheed Martin, to compete globally from the beautiful confines of Boulder, Colo. The privately-held company will produce 60,000 barrels of beer this year but doesn’t disclose annual revenue. It has started selling to a Japanese distributor who supplies American military bases there and to Sweden’s state-run liquor stores. Helton wants to continue to expand internationally. Not lacking in ambition, Helton says the ultimate goal is 350,000 barrels a year.

Avery had been using QuickBooks small-business accounting software for many years, but revenue and volume soared 60 percent in 2011. “That almost crippled the company from a systems standpoint, as well as from a human-capital standpoint,” Helton explains. “We didn’t have anything in place that could scale with us.” By late 2012, the company moved over to the ERP system set up by Orchestra Software, a Portland, Oregon-based specialist in craft breweries, which wraps its own layer of software around SAP’s software.

“The overall platform allowed them to grow and have the confidence to deal with the supply chain and all the concerns about going global,” says Brad Windecker, CEO of Orchestra, which hosts the brewery’s ERP system on the cloud for a monthly subscription fee. Some 35 people at Avery have access to the system. “Most of our customers don’t even know that SAP exists,” says Windecker. “SAP is just another part of the platform that creates a solution to the problem. If you’re less than a $1 billion-a-year company, it’s really difficult to deal directly with an IBM or SAP or Oracle.”

The ERP system helps Avery Brewing on multiple fronts, not just getting paid. International customers all have special requirements in terms of packaging and labeling. The company’s IT systems communicate that information seamlessly to the brewery’s production staff. Moreover, because it is exporting alcohol, it has to make specific reports to the U.S. Treasury Department’s Alcohol and Tobacco Tax Trade Bureau, which the system handles automatically.

Even though Avery is based in the Rocky Mountains, its supply chain is surprisingly international and the Orchestra system helps with that as well. Some of its raw materials, such as specialty malts, come from French-speaking parts of Canada or from Germany. Some packaging materials also come from abroad, as does some of the hardware that Avery uses, such as a canning line. “The procurement of those [items] comes straight out of [the] ERP system,” Henton explains. The system handles sometimes-tricky issues, such as currency differences. Henton can select what currency to display on an invoice and be sure that it is accurate in U.S. dollars. He is beginning to explore SAP’s Ariba cloud-based business-to- business network, because he thinks it will give Avery a competitive advantage in sourcing internationally at better prices—all of which is a huge change from how a smallish company would have operated just a few years ago.

Go With Your Gut
Sono-Tek, the New York-based maker of ultrasonic spray nozzles, is a classic, niche-manufacturer and exporter. It knows how to coat things in a unique, environmentally friendly way, which is valuable to the consumer electronics, energy, medical-device, glass, textile and food industries. It can, for example, provide a precise coating for heart stents and catheters. CEO Coccio, who, like Helton, is a veteran of a much larger company, namely GE, arrived in 2001 when Sono-Tek was a purely North American company, about a quarter of its current size and selling primarily to the electronics industry.

“Our conscious strategy was to diversify in two dimensions,” Coccio explains. “First, we went into new product areas, such as medical devices and glass applications, then into advanced energy, such as solar and fuel cells. The other dimension of expansion was going from a North American company to being an international one. We started to ‘colonize’ Europe, Japan and parts of Africa.”

The company does not manufacture outside the U.S. but maintains an office in Hong Kong to coordinate Asian sales. It also runs lab-testing facilities in Germany, Hong Kong, South Korea and Taiwan—which are spread over many time zones. The Internet “is the only thing that allows it to take place,” he said. “Otherwise, we’d be on planes all the time and it would be inefficient.” Distributors also can get access to information about products from Sono-Tek’s website. “When I was at GE in the late ’90s, the Internet was just becoming important,” Coccio recalls. “If you went back before that and tried to do what we’re doing today, it would have been very difficult.”

The company took the plunge into the cloud by turning to SugarCRM, a smaller, specialized provider, to manage its CRM system. Like many SME CEOs, Coccio says he will keep evaluating specific IT functions to see when it’s time to take them to the cloud, as well. “We do evaluate the ‘make it ourselves’ versus ‘buy it’ decision from time to time. Would we be better off doing that and what are the security concerns? If you have it here on premises, that doesn’t mean it’s more secure, because someone somewhere in the world will figure out how to crack your onsite servers.”

Coccio is not a techie and relies on an IT manager, who reports to the vice president of engineering. “You need to apply your business judgment to investments in any area, including IT, and evaluate the people you have to see if something has a good, gut feel,” he says. “A lot of what CEOs do is based on [their] gut.” And Coccio’s gut almost certainly will lead him deeper into the cloud. The bottom line? A judicious use of cloud computing can give a smaller company enormous advantages globally.

SIDEBAR: Music Mastermind’s Cloud-Based Business Model

" William J. Holstein : William J. Holstein is a journalist, consultant and speaker. He is the author of, "The Next American Economy: Blueprint For A Sustainable Recovery." For more of his work, visit www.williamjholstein.com.."