Winston Hao

Winston Hao, Datavast Inc’s founder and manager, has recently made major adjustments to his original cloud storage product and he is ready to push this new product into the Chinese market.
Problem
Hao is also planning on retiring within five years and cannot invest any more funds into Datavast. He is hoping that this decision will help bring Datavast from operating at a loss to operating at profitably at a net income within the year. Datavast company only has a limited amount of funds and cannot afford higher costs because they are using cash flows from operations as their only funding source. Because of this, Mr. Hao can only choose one type of market segment to focus all Datavast’s efforts on. Will he choose to target small-to-medium 200 to 500 computer (SME’s) companies or larger over 1,000 computer companies? If correctly adopted, either of these choices could have their own unique advantages that can propel Datavast into becoming a money-making machine for Hao and send happily off into retirement. If Hao makes the wrong decision, it could have a really bad impact on Datavast.
Analysis
A lot of companies in China have yet to move onto cloud storage, they are lingering behind technologically by North American standards. Many of these companies are still using CDs, external hard drives, or nothing at all to back up their files. Because cloud storage is relatively new in China, Hao is marketing a product that has not yet been properly introduced ; many people may not entirely trust or understand. One advantage Datavast has is that they are among the first to get into a virtually untapped market. But although there is no real competition for the cloud market in China, Datavast is not as easily recognized as one of the larger companies such as IBM. Another advantage that Datavast has is they own a vastly superior product. Their data securities boxes (DSBs) offer larger amounts of storage than external hard drives, CDs, and flash drives do.
Hao found that segmenting by size is the most effective method because customers in different regions or industries do not have very different buying characteristics. 40% of SMEs do not have any type of back up storage. To sell to these smaller companies, Datavast would have to substantially cut the price of their services and would only receive a 50% margin, but in return, Small-to-medium could potentially provide the desired faster growth for his company because of the SME’s faster selling cycles. On the other hand, by targeting the larger companies, Hao would be able to maximize unit contributions and would make 75-80% margins by eliminating the SI middle man. The downside being that Hao would lose two to three months due to bureaucratic decision-making processes.
Break Even Calculation:
– Overhead = RMB 200,000
– Break-even SME = 200,000/ (RMB 7,000 per DSB – 50% SI margin) = 57 Units
– Break-even Large Corp. = 200,000/(RMB 400,000 per DSB – 20% SI margin) = 1 Unit
Recommendation
I believe that by solely focusing on SMEs, Hao could grow Datavast at a faster pace because there are so many companies without this technology (40%). This would prioritize Hao’s need to grow the company within five years for his retirement. These smaller companies also have fast selling cycles which could allow Datavast to make more money quicker than they would selling to larger companies.