Texas-Sized Challenges

Disaster Recovery and Texas-Sized Challenges for Mid-Market Businesses

Imagine a disaster recovery protocol that accepts multiday downtime of critical systems, damaged equipment, devastating losses, and collective misery as part of the standard operating plan — where those outcomes or their severity are largely preventable. In a truly sad turn of events, this is the scenario the State of Texas is facing in the wake of winter storm Uri.

In addition to the death and harm to people caused by the disaster, reported across media, the disruptions to businesses of all sizes have created another layer of hardship. The pressures on mid-market companies and the experiences they have endured during the disaster are especially instructive. The impact of the power and water outages, as well as collapsed construction and expected litigation over insurance claims, means some mid-market companies may not survive.

Understanding Mid-Market Pressures

Investors and customers often expect businesses that fall in the mid-market range to be as agile as startups in product development, reaction to marketplace changes, and competitive pivoting, despite the fact that they face enterprise-level complexities and risk. When it comes to leveraging their limited resources, pressures around revenue generation compete with risk preparation. The latter includes strengthening disaster recovery plans and protection of digital assets and data.

Accounting firm UHY conducted a 2020 Middle Market Survey showing that mid-market leaders know they need to address all challenges, but feel forced to prioritize revenue generation — namely, via sales growth and talent recruitment. UHY concluded:  

“The results of the survey highlighted several key findings, most notably involving the anticipated challenges facing businesses in 2021. A major theme in our analysis is the discrepancy between what business leaders recognize as critical concerns and what they have the bandwidth and financial security to prioritize. The uncertainty that has marked much of 2020 has bled into these survey results, making it clear that the middle market still stands on shaky legs even as we have entered the next fiscal year.”

Insurance giant QBE, in conjunction with the Association for Corporate Growth (ACG), also revealed mid-market challenges in their North America 2020 Mid-Sized Company Risk Report. It’s important to note that mid-market refers to a company in any “given industry with annual revenues that fall in the middle of the market for that industry.” As such, a wide swath of businesses leverage the term and there’s significant overlap with the small and midsize business (SMB) and midsize enterprise (MSE) designations the QBE/ACG report references. Regardless of labels, mid-market businesses exist at the heart of the U.S. economy and are generally the fastest-growing group by revenue within any industry. Among mid-sized company leaders, the report found that: 29% rank natural disasters or severe weather as a top five concern; 51% rank business interruption as a top five concern, naming infrastructure breakdown and facility shutdowns as most concerning in that category; and 55% rank digital risk as a top five concern, naming cyberattacks/breaches, digital integrity, and loss of intellectual property as key.

But, disconcertingly, the report also indicated that “over half (58%) of mid-sized businesses have unmet needs related to reducing risk exposure, with coverage for digital assets and pandemics most often cited.” Further, “the survey found that many mid-market companies fail to adequately prepare for risks that are caused by external or unpredictable forces.”         

All Mid-Market Must Learn From Texas Mid-Market Experiences

Texas is a promised land for commerce, attracting thousands of new and relocating mid-market businesses and their workers with multi-layered tax advantages, reasonable property costs, and vibrant cities. The Dallas and Houston Business Journals have recently celebrated the 50 fastest growing mid-market companies in North Texas and the Houston area respectively.  

But how does the mid-market respond to an environment where unmitigated disasters may be a continuing reality? Where core infrastructure fails, cheap construction collapses, and people freeze to death? Numerous hospitals across Texas did not have water during the Uri disaster — some still do not have abundant clean water — and the result of that has been nightmarish in many cases. The electricity grid in Texas is the only power system in North America where a reserve margin of power (i.e., power available above expected demand) is unenforced.

The full extent of business damage has not yet been tabulated. But indications of what’s coming are severe. With physical infrastructure, water damage caused by frozen and broken pipes is likely widespread. It’s estimated that $18 billion in damages, more than half from Texas and the majority of which are commercial losses, will be assessed. What about computing systems and data during the multi-day outages? We don’t yet know. But the nature of downtime mid-market businesses experienced will figure into losses and survival.

One executive at a mid-sized retail manufacturing company explained the danger of downtime acutely: “We are a manufacturing environment, and our ERP and network infrastructure drives probably 80% of our production. We are so dependent on our production systems that if it’s down, there’s no way to track our job runs. It would basically shut us down and no employees could do their jobs. We have some very large partners, and if we fail them, it could be a make-or-break type situation for our business.”

Answers in the Cloud?

According to a University of Texas study, “94% of companies suffering from a catastrophic data loss do not survive – 43% never reopen and 51% close within two years.” With the unrelenting pressure on mid-market businesses to show revenue gains and reduce costs, disaster recovery plans that protect digital assets with hybrid and cloud disaster recovery solutions may offer the best hope of balancing the priorities of profit and protection more evenly.

In Texas, it’s likely that mid-market businesses leveraging hybrid and cloud-based disaster recovery options fared better than many. The WSJ reported that multiple data center operators managing cloud stacks (including Rackspace, Digital Realty Trust, and Equinix) resorted to generator-based power, but managed to provide uninterrupted uptime for critical services. Some of their workers faced basic logistical challenges.

Cloud offers the utility, pay-for-use advantage that, when understood and leveraged well, lowers the investment in infrastructure and its upgrades. Competitive and high quality managed service providers (MSPs) and value-added resellers (VARs) can help the whole range of mid-market businesses with expertise in using the hybrid and cloud disaster recovery solutions and disaster-recovery-as-a-service DRaaS platforms that are the best fit for them. Fortunately, contracts with reputable cloud solution vendors mean mid-market businesses won’t be gouged during disasters or peak usage times.

Studying the exact nature of cloud use for disaster recovery among mid-market companies in Texas — and how those companies ultimately fare emerging from this disaster — is key for mid-market businesses everywhere to improve disaster recovery strategies. More news about cloud provider capacity and response is likely to surface in the coming weeks and months. That will yield telling evidence of how far cloud really takes business in the face of widespread catastrophe.