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  1. #1
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    Apr 2004
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    Exclamation Starting a DC in Ontario? Confirming this is a bad idea.

    Hi there-
    Anyone in Canada knows, DCs here are very expensive. Aside from iWeb, all the way in Quebec, it's pretty tough to find a DC which is not somehow lacking. (And now iWeb has increased prices.)

    I'm been in the online storage business, renting secure data centers (colocation) for about 10 years. Every colo provider I have used, over that period, has been bought out or went public. While it's a long road, I feel doing it right could lead to that.

    First, capital: There would be $500K total from all partners to cover startup and operations until the break-even point. There's a strong desire for $450K of that to cover hard assets only (HVAC equipment, generators, maybe buy a unit inside an industrial building, etc).
    I think we want to start with a 2000-4000 square foot facility in an area where we can expand, but no idea if that makes sense.
    Given the human resources below, is that enough?

    One of the main reasons that triggered this idea: I woke up one day and realized, in my inner circle of people I trust, I have most of the people I need. And, all of them, coincidentally, either spoke openly about interest in a data center, or are looking for a business project to sink their teeth into.

    To be clear, I probably would be a small minority owner. We would divy up the equity according to the contribution needed. (Hard, I know, let's not discuss that here tho.)

    Here are the partners, and what each would contribute:
    - Myself: Programming team, open-stack specialization, tier-1 support (my staff would not be on-site). We would also modify our IQBox project to work over open-stack. It's still in beta (only 4 months of dev work so far), but we have made progress. (http://code.google.com/p/iqbox-ftp/)
    - Owner of hosting company I work with often: Experience with servers, routers, wiring, tier2, tier3 support, (some) customers.
    - Equipment provider: This person owns a small company who provides off-lease equipment, and also has connections to lease or finance new equipment. In particular, for dedicated servers, we could rapidly provision used servers. I feel since he's worked on big equipment purchases, he can arrange the financing or leasing well. Another thing- he's got a warehouse and is extremely organized.
    - Electrician: Critical partner, but I'd need to find one. I think that would lower the cost a lot. This is the one partner I would not actually have a personal history with.
    - HVAC: I have a trusted friend who is licensed and has over 6 years experience. We have been through a lot together as friends. This person is a very hard worker, and someone I can trust.
    - Fire suppression, alarms, large lead sales: I have a close friend who is also someone I've done business with many times. He's an amazing salesman- and also has experience with fire suppression systems and alarm system.
    - General Maintenance Question: Do I need such a person? I have a contact I've known for a few years now- he maintains skyscrapers- a very different challenge. He's sort of a general tradesman who works really hard. My thinking is, buildings need someone on-call. For a small DC it might be overkill. But I don't want that hole of "who ensures everything is okay" to be left unfilled. Also, I've seen his work myself and he's a hard worker, someone I would trust. And, we need to deal with vacations. He can help manage (by knowing who to call) when HVAC/electrician is not around.
    - Day support: I have someone who has experience with both IT and cabling/CISCO. He can augment the support by web host guy, part time, and deal with short-staff situations.
    - Sales: Well, this is my fear. We might want someone who has a better sales engine. Nothing is worse than an empty data center! I'd need to research this a lot.

    Well, what do you all think!?
    I personally think this plan is stupid and crazy and shouldn't be done. But part of me thinks, only because it's Canada and the competition is weaker, maybe it's worth more consideration?
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  2. #2
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    Also, just a note: The idea is to locate it just outside Toronto. A city like Etobicoke or maybe even Cambridge/Waterloo which has lower real estate cost, but enough commerce for fiber.
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  3. #3
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    You are going to need more capital. General rule of thumb with any new business is you want to have 1-2 years operating capital after initial setup costs. With a data center I wouldn't expect to break even until year 2 (especially if your launching a new brand). There is a fair amount of competition in the GTA and southern Ontario as a whole.

    Location will be everything in selecting your site. You want access to at least two different fiber providers in the best case scenario (to get true diverse paths). Power access will be another, not just in size of power feed available but also if you can possibly connect to two different substations. The list goes on.

    To be honest from a business perspective you are far better off renting a cage at a carrier hotel (think 151, 905 King West etc), than building out all that infrastructure that will eat up that 500k in no time at all. Once you have a large customer base and lots of extra capital, then consider building your own facility.
    Last edited by MooreAdmin; 10-31-2013 at 08:40 AM.

  4. #4
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    As you may already know, the majority of competitively priced DC's are in Quebec primarily due to the lower power costs. Hydro Quebec has many hydroelectric facilities and subsidized rates that tend to lower variable costs.

    The only decent new facility that was competitively priced (Granite Networks in Ottawa) was recently bought out by Rogers. Unfortunately, Ontario seems to be very different in terms of market to make this venture work vs. Quebec.

    That being said, you can rent a lot of cage space in many different carrier neutral DC's in quebec and it's only 8-9ms away from most major cities in Ontario...

    Unless your requirements really need you to own the facility (in which case you will need much more than 500k to get started), your facing a very uphill battle.

    At the end of the day, this would become more of a real-estate strategic exercise to make a winning combo in the end. Especially if you can find some sort of small hydro electric facility (sort of like OVH did) that you can also lease/purchase as part of the deal to give you a competitive advantage on power.
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  5. #5
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    2000-4000 square foot does not seem like much space for a DC, it seems absolutely tiny. My small apartment is 1000sq ft. Take out some space for generators, UPS, HVAC, staffing, and you won't have much at all left for actual rack space.
    Looking at some other smaller players, Continuum's datacenter is 21,000 sq ft, fiberhub is 14,000 sq ft, and Granite Networks that media-hosts mentioned is 28,000 sq ft.
    You'll have to expand right away which you won't be able to do since your income will be small.

    My next issue is the capital. The Granite Networks DC cost them 14 million. $500k will be nothing close to what you need. That would mostly (if not all), be needed just for the networking gear. Core routers can be $50k+ easily, and you'll want to be redundant right? What about licenses and permits, insurance costs, software fees, etc? $500k is a dream.

    Given those two things, I don't think there's reason to go on with any other reasons why this is bad.

  6. #6
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    Quote Originally Posted by cyman View Post
    Also, just a note: The idea is to locate it just outside Toronto. A city like Etobicoke or maybe even Cambridge/Waterloo which has lower real estate cost, but enough commerce for fiber.
    Cambridge/Waterloo will be a perfect location. Real estate is very reasonable in this region

  7. #7
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    Quote Originally Posted by NetDepot - Terrence View Post
    Cambridge/Waterloo will be a perfect location. Real estate is very reasonable in this region
    But is the cost of getting any real connectivity going to completely offset real estate cost?
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  8. #8
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    Quote Originally Posted by Dougy View Post
    But is the cost of getting any real connectivity going to completely offset real estate cost?
    You can get point to point fiber via bell's tariff rates (set by goc/crtc). But that would require also colo'ing in another DC with transit on site (like 151 front). Backhauling yourself would reduce the cost of transit bandwidth since you can buy it at the on-net price. But you would likely want to get at least two redundant paths (preferably below ground). That could cost some significant up-front construction fees.
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  9. #9
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    500K is unlikely to get you very much other than a bunch of stuff you'll sell at a loss to someone when it all comes crumbling down.

  10. #10
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    It seems like you actually have a decent team there and a reasonable plan. I think your capitalization is probably a little light, but you can probably make it work if your electrician and hvac guys are willing to do a lot of sweat equity and you shop the used market for equipment. I'd also look for some vendor financing where you can, along with rent-to-own or lease options on some equipment - those options are out there. You will have to make some sacrifices in redundancy initially. I would definitely look for a building that would result in a larger footprint - I.e find a building that would allow you to build out to 10k feet of data center space, and then just build out the first 2000 or 3000 feet to start, then add on as you go. This will eventually give you the necessary scale to be profitable.

    The big thing will be operational expenses. You have to have a couple of anchor tenants ASAP to offset some of your costs. If you and your hosting company partner relocate all of your gear to the new facility, figure out what you would need to have on hand to sustain operations for 12-18 mos, including income from coloing those businesses. That's the minimum you would need.

    Although size can be important, remember that there are some very profitable 5000 sq ft data centers out there, and there are 50,000 sq ft facilities that are going bankrupt. It's all a matter of understanding your niche and having a good business plan.
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  11. #11
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    Just to start off, a budget of 500K is low for what you want to start. I would also recommend that you get a bigger space, since if everything goes as planned you will need to expand quickly, but you wont have the funds to since you just spent all the money on the current location.

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  12. #12
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    Quote Originally Posted by Rob T View Post
    It seems like you actually have a decent team there and a reasonable plan. I think your capitalization is probably a little light, but you can probably make it work if your electrician and hvac guys are willing to do a lot of sweat equity and you shop the used market for equipment. I'd also look for some vendor financing where you can, along with rent-to-own or lease options on some equipment - those options are out there. You will have to make some sacrifices in redundancy initially. I would definitely look for a building that would result in a larger footprint - I.e find a building that would allow you to build out to 10k feet of data center space, and then just build out the first 2000 or 3000 feet to start, then add on as you go. This will eventually give you the necessary scale to be profitable.

    The big thing will be operational expenses. You have to have a couple of anchor tenants ASAP to offset some of your costs. If you and your hosting company partner relocate all of your gear to the new facility, figure out what you would need to have on hand to sustain operations for 12-18 mos, including income from coloing those businesses. That's the minimum you would need.

    Although size can be important, remember that there are some very profitable 5000 sq ft data centers out there, and there are 50,000 sq ft facilities that are going bankrupt. It's all a matter of understanding your niche and having a good business plan.
    Well written .

    - Daniel
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  13. #13
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    Quote Originally Posted by cyman View Post
    Hi there-
    Anyone in Canada knows, DCs here are very expensive. Aside from iWeb, all the way in Quebec, it's pretty tough to find a DC which is not somehow lacking. (And now iWeb has increased prices.)
    If you think that the facilities in the GTA are spendy (relative to market), or that there isn't much competition, or ignored demand outside of the core, these are all indications that you've failed to do your homework. Do you even know what your cost per KWH would be? Or delivered transit after transport and interconnect costs? I mean the real, local numbers, not the "this one guy on WHT said" numbers.

    $500k might be enough to buy *some* decent equipment (arguably, not all of it), but not get a single piece installed. Moving, commissioning, installation costs can often run more then the gear. Merging together such a diverse set of people with such small investment (relative to the overall cost, not considering being so far under-budget), without a single person having direct experience in building a data center is a recipe for disaster.

    Having said that, electricians/HVAC techs/etc. on-staff? Awesome. Does your electrician have experience building data centers from scratch? Is he a master electrician? If you answered no to either of those, then he brings little to the table. He's not going to be able to do much of the work alone, nor will your HVAC tech.

    Colo's in Ontario aren't spendy because they want to shrug away the business. Their costs are dictated largely by the market conditions.

    If you're serious, put up a chunk of money, and pay some proven professionals/engineers/etc. to do a feasibility study on your choice location, etc. at the very least. It's better to throw a little money down the well, then it is to gamble with a lot.

    Also, remember when comparing the numbers to the big boys a few rules:

    #1 - They have economy of scale, you probably wont
    #2 - Lots of them have connections/bargains/etc. far better than what you can hope to nail down.
    #3 - They've got experience, it's a very expensive trait to acquire, and the smallest of mistakes get expensive, fast.
    #4 - If you tell yourself "oh they're a big company, they don't mind throwing around money", you need to stop kidding yourself. The big guys care about saving money as much as you or I.

  14. #14
    I live in Toronto, you're going to need a much larger budget to start up something here. And going "near" the GTA is likely going to lead to service issues as the outer areas aren't as reliable.

    If you want to open up your own DC in Canada you need to look at either Vancouver or Montreal in order to meet your needs. Ontario is way too expensive for the budget you have. Even outside of Ontario your safest bet is to secure more operating capital or co-locate for now till you build up a rep and a bit of market share.
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  15. #15
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    I find this a very interesting thread. If you can get your transit through Toronto and also through a southern point via Detroit or Buffalo or Sarnia, you could avoid some of the issues it seems we have in Toronto with all of the transit going through the same conduit or fibres or _fibre_.

    It seems like if you get a much much larger space than you require, you can maybe use the extra space as a heat sink. Maybe handle AC failures better. I am guessing you can get 30k sq ft in Chattam for the same price as 1k sq ft in the GTA.

    Basically, make use of the few benefits you have outside of the GTA. Cheaper space and physical diversity.

    If your own company is the first one moving in, you can be your own anchor tentant. This seems like it would be a huge thing, getting the first big client and and worrying about keeping them happy must be a big deal. I would expect this is enough to get 3rd party funding.

    I think the three things that are missing are:
    1. someone who lives within 15 minutes of the datacentre who can react to problems.
    2. a sales person. more important maybe than all of the rest.
    3. A pair of routers's, distribution layer switches, PDUs, optics, cabling, racks, raised flooring, cable channels, humidifier, UPS, Air conditioners, security system, breakers, etc etc etc is going to blow through your 500k pretty quick. Heck, copper power cabling is extremely expensive these days at the gauge you need. Even ARIN will take a few thousand if you can justify it.

    In the end, you are likely best looking for someone else who is struggling and buy their data centre and clients from them.

  16. #16
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    Sounds like you've got the knowledge to pull it off, or have the ability to figure it out, ultimately it's just a building with air-con, fibre and other bits in it at the end of the day, with the people to manage it, which it seems you have.

    That said, you'll need more than half a million, what most often forget is not only the cost of getting the fibre to the building, but enough power to run future operations, often resulting in another substation having to be installed, and that's not cheap. Sounds like your main problem is money rather than a lack of technical ability to be able to pull this off.

    Sales is also key - there's load of people on this forum who could technically set up a datacentre if given the money, but can they sell...
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  17. #17
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    Sales and business model.

    Lots of great feedback from everyone. I would agree with most comments on the lack of capital as a primary concern. Getting it half right won't do it in the data center business.

    As a few have commented, the ability to sell space is number one. To sell space you also need design excellence, so you really need to have both.

    To sell space you also need a rather specific target market plan. Who is your market, specifically? Where is the market? How big is the market? What will it cost to employ a sales model to sell to that market at a reasonable pace? Create a financial model that incorporates all these characteristics to see where you are at.

    Considering the importance of these questions, it might be worth considering building a business plan to sell space that you lease from a provider. That business building exercise will lead to clearer definitions of markets and market penetration, and likely provide access to anchor tenants for a new DC.

    There's a reason many of the comments in this thread are lengthy...building a DC is a big deal, and it's complicated to do it right. Don't be discouraged though, just keep evolving your plan.

    Alan Howard << removed >>
    Last edited by writespeak; 11-05-2013 at 01:37 PM.

  18. #18
    Hamilton it is, which is less than an hour away from Toronto. Provided that we got into the best building in Hamilton with redundant infrastructure. We are now in the previous CIBC national disaster recovery centre floor at 21 King Street West

  19. #19
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    Apr 2004
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    Thanks everyone!! This is great feedback. In sum- I've taken the advice to heart that more capital is necessary. Also, in terms of the exit strategy: As you mentioned, there's more to Big Company X buying out a DC than just having a great business. Often the purchases are very strategic- low overheads, growing market in that area, key clientele.

    I'm not going to go ahead with it.
    I read all that you have to say and wanted to say thanks.
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