Introduction
Since its inception, CloudFlare Inc. experienced exponential growth to the point of rivaling the main players in its industry. The innovative idea upon which the concept of the company was based, its customer value proposition, go-to-market plan, technology and operations management, and the cash flow formula all contributed to the growth of the company. However, the company was faced with several resignations over a short period. It was evidence that these resignations pointed to other underlying issues within the organization and its culture. An analysis of the problems in the company will lead to recommendations that form part of the action plan to resolve the issues in the company.
Analysis
The success of CloudFlare, Inc. is pegged on various aspects of their business model. The customer value proposition of the company forms one of the elements that not only offer the company a competitive advantage but also one that could lead to greater profit margins. CloudFlare, Inc. delivered value to the customers by offering the customized protection and security for their websites for a reduced cost (Eisenmann and Godden 3). Webmasters spent 60% less in the costs of bandwidth use and also achieved twice the speed of website loading. The customer value proposition was also differentiated from that of the other incumbents in the industry in that the basic services were offered free of charge (Eisenmann and Godden 3). The charges for premium products ranged from twenty dollars a month to three thousand dollars depending on the type of user.
While this approach was pivotal to spreading the word of their products, it was best complemented by an aggressive marketing campaign to recruit more customer subscription to the premium packages. However, the customer acquisition strategy of the company relied on the word-of-mouth and referrals from their existing customers (Eisenmann and Godden 5). This strategy was reliable to some extent. For instance, bloggers and operators of hobby sites who had signed up for the free basic services recommended that their employers sign up for the premium packages (Eisenmann and Godden 5). Additionally, the protection of LulzSec, a group that is synonymous with hacking led to the subscription of escort agencies operating in Turkey. The successful protection of these agencies resulted in a snowball effect that saw the government agencies and corporations in Turkey relying upon CloudFlare, Inc. for the protection of their websites (Eisenmann and Godden 4).
Despite the fact of the success of the word-of-mouth and the fact that the resale agreements contributed 25% of the company’s customer base, it concerns that only 4% of the customers of the company subscribed to any of the premium plans on offer. This reiterates the argument for an aggressive marketing campaign to acquire more customers on premium subscriptions. This argument is empirically supported by the profit formula of the company that shows that when all the costs are factored in, the company still makes an annual loss of 3.05 million dollars in the best case scenario (Eisenmann and Godden 6). The company cannot reduce costs further because the increase of operation costs such as hosting fees, the depreciation of the servers, and the usage of bandwidth was proportion to increases in the volume of the traffic.
The other costs that contributed to the annual expenses include the overheads such as accounting and legal fees, the remuneration and benefits of the company’s employees and the rent of the business premises (Eisenmann and Godden 6). Using its cost performance strategy, the company had ensured that the expenses remained at a minimum. For instance, Twenty-six of the thirty-five employees of the company were engineers (Eisenmann and Godden 1). This is in line with the trends used by Silicon Valley start-up companies to reduce operation costs. The implication is that the company needs to generate more income from their core business activities to offset the expenses and also make a profit. Given that they can only reduce the costs marginally, the recommendation would be to review their prices upwards or operate in an economy of scales principle. The economy of scale principle would require them to market their products aggressively with a target if increasing the subscription of customers to their premium plans.
It is true that the recent resignations at CloudFlare, Inc. are not the result of the idiosyncrasies of the individual employees but rather a reflection of underlying problems in the organization structure, culture, and the management style of the founders. The most concerning of the resignations was that of David Conrad. The issues surrounding this resignation that raise concern include the refusal by the founders of the company to create an organizational structure (Eisenmann and Godden 11). The organizational culture at the inception of the company was characterized by minimized hierarchies and bureaucracy and staff that were motivated by self-direction (Eisenmann and Godden 1).
For this reason, the company did not have an organizational structure or a hierarchy through which reporting was done. While this was appropriate for a small startup company where the prevailing issues could be handled ad hoc, the growth witnessed in the company necessitated some structure for better organizations of the processes. It also concerned that the company did not have support structures such as an information and technology office to assist in the installation of infrastructure. This was still appropriate when the company was small, and also considering that most of the employees had technical capabilities. However, the growth of the company necessitated a mid-level management team which would most probably be comprised of non-technical members.
The resignations also highlighted issues of a lack of job satisfaction in the company. There were complaints from all the members about the feeling that the tasks to which they were assigned did not utilize their skills adequately. For instance, Conrad through that he was hired to bring structure into the company. Instead, he was assigned to do coding (Eisenmann and Godden 11). The resignation of Kiefling highlighted the human resource situation. While the specific issues raised by Kiefling were that he spent too many hours on the job because there were only two people assigned to the tasks he performed, the issues reflect the understaffing in the company resulting in employee burnout. In the causes for his resignation, Zakur highlighted the long hours and the lack of satisfaction owing to the fact that he was not assigned to tasks that best reflected his skill set (Eisenmann and Godden 12).
One of the two other employees who resigned also cited the workload resulting in burnout and backlog and the fact that he did not find satisfaction in his job (Eisenmann and Godden 12). The last employee who resigned from the company cited differences in with one of the founders regarding the strategy of the company and the staffing plans. The commonality of the themes in the issues raised by the employees who resigned underscores the argument that the resignations were a reflection of deeper issues in the company.
Action Plan
There are several changes recommended for implementation at CloudFlare, Inc. to prepare the organization for a sustained period of growth in the short and long-term. The action plan for the company involves the implementation if various changes. The first tenet of the action plan is the development of the organizational structure. This reflects the fact that the growth of the company has surpassed the ability of the ad hoc systems used previously. The organizational structure will establish a hierarchy in the organization to facilitate reporting and accountability. The hierarchy will also introduce different levels of management to reflect the increased need for coordination in the company. The hierarchy will also introduce other departments to supplement the engineering department that has been active in the organization since its inception.
A change in the organizational culture is needed to enable the overall success of the action plan. As identified before, the existing organizational culture had no regard for bureaucracies and hierarchies and also encouraged the self-drive of the employees to spur the growth of the company (Eisenmann and Godden 1). The recommended change will not undermine the importance of self-drive or seek to introduce bureaucracies. However, it will remedy the structure of the company by introducing levels of management. The action plan will also result in the creation of marketing and the human resource department for presiding of the marketing and hiring strategies of the organization. These two processes will not be under the patronage of the co-founders. The co-founders will communicate these changes in a meeting with all the employees after which they will request for feedback.
Conclusion
The underlying problems at CloudFlare, Inc. were reflected by the dissatisfaction of the employees, an aspect which contributed to their resignation. The recommended solution to the problems is a change in organizational culture, the introduction of structure in the organizations, and the creation of marketing and human resource departments as part of the middle level management.
Works Cited
Eisenmann, Thomas and Godden, Alex. CloudFlare, Inc.: Running hot? Boston. Harvard Business School. 24 Oct. 2014. Web. 5 Apr. 2016.
