While the furore over the US data surveillance programme Prism raged last week, Microsoft published a little-noticed research note that suggests too many small and medium-sized enterprises in the UK may be missing out because of their anxiety about data privacy and security.
The IT giant looked at just over 200 British SMEs, of which roughly half had switched some of their operations from purely in-house computer software and hardware to cloud-based technologies. Of those, seven in 10 reported making savings as a result of the switch.
Among SMEs that have not moved towards cloud computing, no such savings were registered, of course, but the businesses in question hadn't rejected cloud because they didn't anticipate enjoying any financial benefits. Rather, more than half said they were uncomfortable with cloud computing because of concerns about data security. It's a natural enough instinct. In an era when customers and regulators are scrutinising corporate efforts to protect data ever more closely, releasing such data into an ecosystem provided and controlled by a third party – the cloud provider – no doubt feels like adding a new risk.
Many SMEs said it was the idea of losing control of their data that most spooked them. Others were worried about compliance. With cloud providers based in different jurisdictions, it's not only UK regulation to consider (though the UK view of the cloud is uncompromising, since British law makes data privacy the absolute responsibility of the company which owns it).
Here's the thing though. While it is easy to understand why a move to cloud computing would feel like a backwards step on data security for many SMEs, it's not a rational conclusion.
It's not as though British companies have been performing well on security with their current IT arrangements. The Information Commissioner's Office reports that there has been a tenfold increase in corporate data breaches over the past five years and while it doesn't offer a breakdown of how many involved companies with cloud computing technology, the fact these solutions are only just seeing widespread adoption suggests most of those breaches were on non-cloud systems.
Moreover, however hard they try, most SMEs do not have the resources or expertise to manage their IT security to the robust standards required. For this reason, switching to cloud computing will often enhance a company's security. Every provider of cloud services knows a breach of their systems is likely to spell the end of their businesses, so their interests are absolutely aligned with those of their customers. This has certainly been the experience of the SMEs surveyed by Microsoft. Of those that have switched to the cloud, 91 per cent said there had been a positive impact on their data security as a result. Nine in 10 also said they now found it easier to meet their compliance requirements.
That's not to say SMEs can simply wash their hands of security management by switching to cloud-based technologies. They should rigorously interrogate cloud providers on data privacy and security safeguards.
Nevertheless, opting to pass on the undoubted financial savings available to many SMEs from cloud computing is likely to be a mistake if the decision is made for security reasons alone. Indeed, improving data security might even be a better reason to switch.
Ironically, after Prism, there is mounting concern in the European Commission that data regulation is inhibiting the digital agenda in ways not seen in the US, where regulation is less exacting. Many British SMEs may be falling behind.
Cash-rich shell companies are busy doing nothing
Bing Crosby would no doubt approve: there is an unusually large number of companies on the Alternative Investment Market (Aim) busy doing nothing.
The Cash Shells Directory, published by Vitesse Media and Growth Company Investor, reveals there are 53 cash shells listed. Together they have cash to invest of £560m, more than twice as much as a year ago. This is cash held by companies with a listing but no trading operations, and investment companies holding more in cash than the funds allocated to portfolio holdings.
Since the directory was compiled, several new ones have emerged. They include Feedback, which has just sold its Feedback Data business, and In-Deed Online, which is selling its conveyancing operations. Both deals will leave the companies with only cash holdings.
Castle offers innovative mortgage
Specialist lenders to small businesses are trialling innovative ideas to plug the funding shortfall created by the lack of credit from some big banks.
Castle Trust today unveils the Partnership Mortgage for owners of small and medium-sized enterprises.
Castle Trust was launched two years ago with funding from private equity giant JC Flowers. Its mortgage is available to business owners who own at least 40 per cent of the equity in their homes, with lending capped at a maximum of 20 per cent of the property's value. Borrowers make no monthly repayments; instead they pay the loan back if they sell the property or at the end of the mortgage term – either way, they also have to hand over 40 per cent of any rise in the property's value to the lender as well as the original capital borrowed.
The big advantage of the deal is that the lender is focused on the business owner's property, rather than the business itself, which should make it much easier for many firms to get funding. There are potential downsides too – not least the prospect of very substantial charges if property prices rise strongly over the term of the deal. Nevertheless, all innovation in the sector is welcome.
Small Business Man of the Week: Mike Hamilton, Commando Joes'
I founded Commando Joes' in 2009. I'd spent eight years in the military and absolutely loved it, working in bomb disposal and on postings in Iraq and Afghanistan. My final job was in army recruitment. That took me into schools where I ran all sorts of team-building exercises and fun projects with the kids. I realised I was teaching skills that could be applied in any job and that's where the idea for the business came from.
"I spent my first year as a one-man band and then went on the Dragons' Den TV programme. I got turned down for funding but the dragons were very supportive; they were worried I wouldn't be able to scale the business and that I'd struggle to recruit.
"They were right – this business is all about getting the right staff. We've developed into a business that has 30 highly qualified instructors working in 120 schools all over the country.
"We work with kids of all ages, providing gentle military-style exercises and classes to focus on everything from punctuality to improving their numeracy.
"The first four years have been tough, but the business has made it. We hope to recruit up to 80 more staff over the next year or so.