The Big 50 Colocation Companies
Build a Go/No Go strategy.
Fifteen years ago, data center engineers had literally thousands of potential clients in the United States with data centers — plenty of work to go around, right? As the enterprise data centers move to colocation (colo) or the cloud, the number of potential data center clients gets reduced to approximately 50. Yes 50. Only 50 colo/cloud clients housing thousands of enterprise data centers are in the United States — in which we are all competing for their data center design work. This includes the top five cloud providers that are building out hundreds of MW of data centers annually. And while yes, the projects are much bigger than they used to be with the enterprise clients, the quantities of data center potential clients are coming down. I’ve been working on a 2018 business plan, with a realization that in the future there will only be 50 or less potential data center clients nationally. That’s scary when you consider a long-term strategy.
DATA CENTER M&A DOESN’T HELP
Now that we can identify the top 50 colo/cloud providers, mergers and acquisitions (M&A) portfolio activity reduces the amount of potential clients due to acquisitions. If you were a DuPont Fabros data center engineer, and then comes along Digital Realty Trust (DRT) to buy them up, there’s a good chance you may not work again with your past client. As more and more data center acquisitions take place, it reduces the number potential clients there are on the market. Recently, DRT and Equinix have had acquisitions creating the combined footprint to 326 data centers worldwide. That is a lot of data centers for only two clients.
IS A GO/NO GO A NO-NO?
Within the larger data center engineering firms, when an opportunity for a new client arises, the firm may evaluate that new client and create a Go/No Go process to determine if they indeed want to work with the new prospective client. For some business development people, every prospective client is a Go, right?
Not necessarily. If your firm has been in the data center industry for a long time, it has grown a reputation of delivering quality design, and the chances are that the larger colo/cloud firms value your partnership. When you work for five of the top seven data center owners in the world, each existing client becomes extremely valuable, and over exerting staff resources by taking on a new client may create problems. Therefore, a Go/No Go decision may be the best solution to continue existing relationships and provide excellent customer service. It’s like biting off more than you can chew.
When thinking about a Go/No Go process, one may think that if you’re doing multiple No Go’s it time to grow your firm. This is easier said than done right now. Qualified data center engineers are difficult to find. It typically takes at least five years to hone in on a skill (read last month’s column, “Niche…Discover Yours”).
One of the last things you want to do is put an inexperienced engineer on a top five client. The client perception could be twofold; one that your firm does not value them as a client, or two the inexperienced engineer will make mistakes and cost the project money.
Acquisitions of data center engineering firms, which rarely occur, are probably not the solution. If the firm is an established data center consultancy, it is doing well and is financially stable. Nobody wants to sell if that’s the case.
WHAT SHOULD BE YOUR STRATEGY WHEN DEVELOPING A GO/NO GO PROCESS?
There are four things to think about when developing your Go/No Go Strategy.
Does the new client align with your corporate core values? A long-term strategy may have identified this client as a valued partner. If your company has vision, you identify in advance who you’d like to work with. This can include a growth client, an industry leader, or a data center owner in acquisition mode. Another consideration — does the new client share in your culture — will they be a fun client?
Can the new client provide continuous revenue after you finish the first project? Financial stability and growth play a large role identifying clients you’d like to work with. Beware of data center start-up companies.
Do you have the staff to properly work on this project? Not staffing a project properly will hurt the new relationship, but may affect an existing relationship that has been a good partner.
If a No Go is determined, will the prospective client understand that it is in their best interest as well? It’s very important to communicate why you’ve made that decision. This doesn’t mean that you won’t work with them in the future, but at your current workload the project delivery might be in jeopardy.
Remember that we are down to the last Big 50. It is very possible that if you do a “No Go” you are giving a competitor an opportunity to win and develop a relationship that you may not get back. Managing your workload and being at the “ready” for when new opportunities arise becomes a critical component of business development. Constant communication with your operations group is vital when considering a new client. Who knows, at the rate of data center portfolio acquisitions today, we may get down to The Big 5.