Issues Faced by ServerVault
Problem:
ServerVault was confronting with couples of significant issues when expanding their hosting businesses. First, they would need to hire more full-time employees with highly experiences in skills to fulfill the needs of the expansion. However, it was very hard to find the proper employees within the narrow job markets. Secondly, the expansion means cost much. With the unexpected drops of the MASDAQ index, the new investors began to become conservative and willing to invest if they see the bright future of the products. So, the investors need to know the forecast of companies’ earnings in the next 12 months and how ServerVault could produce money for them. As the descriptions of the forecast, the expenditures for each new facility was approximately $5 million to $6 million, and therefore ServerVault had to raise enough capitals of $20 million to $24 million to build the forecasting four facilities in upcoming 12 months. Furthermore, the prospective investors would use the “burn rate” to measure the cash spent in each month (Reference 1). By the “burn rate”, the potential investors might want to know when ServerVault’s earnings exceeded expenditures and to produce positive cash flows. However, ServerVault’s “burn rate” was not optimistic since they have negative cash flows in the first half year of 2000. ServerVault spent too much in marketing expense and bandwidth resulted in the increased cash spent. In addition, ServerVault did not find the proper way to increase the services revenues which were considered the major earning method of the managed hosting services. To sum up, the major challenge for ServerVault was to figure out the way to control the operation costs and produce the positive cash flows to the prospective investors and let them consider it is a good investment to ServerVault.
Strategy:
As a new entrant of the hosting industry, ServerVault had to confront with lots of competitors and the pressure of the environment. For example, they did not
ServerVault was confronting with couples of significant issues when expanding their hosting businesses. First, they would need to hire more full-time employees with highly experiences in skills to fulfill the needs of the expansion. However, it was very hard to find the proper employees within the narrow job markets. Secondly, the expansion means cost much. With the unexpected drops of the MASDAQ index, the new investors began to become conservative and willing to invest if they see the bright future of the products. So, the investors need to know the forecast of companies’ earnings in the next 12 months and how ServerVault could produce money for them. As the descriptions of the forecast, the expenditures for each new facility was approximately $5 million to $6 million, and therefore ServerVault had to raise enough capitals of $20 million to $24 million to build the forecasting four facilities in upcoming 12 months. Furthermore, the prospective investors would use the “burn rate” to measure the cash spent in each month (Reference 1). By the “burn rate”, the potential investors might want to know when ServerVault’s earnings exceeded expenditures and to produce positive cash flows. However, ServerVault’s “burn rate” was not optimistic since they have negative cash flows in the first half year of 2000. ServerVault spent too much in marketing expense and bandwidth resulted in the increased cash spent. In addition, ServerVault did not find the proper way to increase the services revenues which were considered the major earning method of the managed hosting services. To sum up, the major challenge for ServerVault was to figure out the way to control the operation costs and produce the positive cash flows to the prospective investors and let them consider it is a good investment to ServerVault.
Strategy:
As a new entrant of the hosting industry, ServerVault had to confront with lots of competitors and the pressure of the environment. For example, they did not