The Rise and Rise of the Data Center CFO
The data center market has enjoyed many decades of almost unbridled and recession proof growth. This but this year, more than any other, we can see the inevitable signs of a market that's rapidly maturing and finding its longer term feet in the form of bigger, stronger (and in theory) more financially sustainable data center businesses. Businesses that provide the core underpinning resource of the digital and internet-based economy.
That said, this is a significantly different marketplace than it was just a year ago.
The focus has shifted from top to bottom line performance, and with the ever-increasing challenge of understanding, controlling and managing the financial drivers of these businesses, a long overdue change in operational and financial management is required.
It used to be sufficient to create an excel based financial model together for each asset that spoke to the capital requirement, expected operating costs, and projected revenues and thus provide a pretty good macro level yield model.
Roll many of those together and so long as your model was relatively conservative it was almost a sure thing that you'd have a free cash flow generative business, so long as you had sales people that could sell.
There were good deals but also so less than great deals done over the years as far as acquiring customer revenue was concerned for most operators. Quite often the commercial model was tweaked, and even more often larger customers were sold capacity on "special pricing or special terms".
Thus today most multi tenant operators have a mix of good and 'bad' customers from both a revenue, but more importantly, a margin perspective. However, understanding exactly what the margin per customer actually is, is an amazingly complex and time/resource consuming task. In fact it's worse than that, as while doing a point-in-time analysis is hard, the reality is the dynamic. So by the time you've figured it out, the variables have changed and thus your information is already out of date!
CFOs of all competent data center businesses out there will recognize this problem because it's what they are grappling with right now. If they aren't feeling these issues yet, it's either because of the inertia (mostly a function of their financial size in this case) their business already has, or they are in even bigger trouble than they realize!
CFOs have risen to prominence alongside the CIO within corporate enterprise due to the ever increasing budget and importance of technology to a business's competitive advantage - or even just its continued existence in heavily commoditized markets.
The CFO is about to rise to prominence in a similar way within data center companies.
It's no longer tenable to try and manage capital and operational spend using spreadsheets and a finance system alone. Financial models need to be tied to operational models or one will mislead the other, leading to tears and gnashing of teeth.
Financial planning and modeling can no longer be a once a year static high cost time intensive exercise. Every deal must be rapidly assessed and its margin understood before a contract is signed. Further, the financial performance of each customer must be automatically tracked so that when the dynamic of the asset changes, either intentionally or unintentionally, the impact on the financial return is immediately visible.
All of this requires new tools, new capability and automation between operations, engineering and finance that's never existed before, and it is far from easy to create!
Luckily, Romonet exists to solve these problems and meet this need and we've been anticipating it for the last eight years, so guess what, we are ready and able to help the data center industry go through this next stage of its economic maturity.
Zahl Limbuwala, CEO of Romonet