Status Go: Ep. 213 – Alignment Through Cloud Cost Optimization | Nick Lumsden

Summary

On this episode of Status Go, Nick Lumsden takes us through his journey of working in the healthcare industry and how it influenced his current work as the co-founder of Tenacity, a cloud cost optimization platform backed by human services that helps customers align their cloud spending with their overall business goals. Nick discusses the benefits of cloud technology over traditional methods, the role of AI in cloud cost anomaly detection and forecasting, and the potential for generative AI. He also talks about his predictions for the industry, including the emergence of FinOps and more data-driven decisions in organizations. Additionally, Nick shares his process for identifying crucial stakeholders and promoting collaboration. Don’t miss this informative episode of the Status Go podcast.

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About Nick Lumsden

Nick is a self-professed rebel, frequent contrarian, life-long builder, and a 22-year veteran leader of early and growth-stage organizations. He is driven to disrupt industries through technology, with a passion for creating truly meaningful impact in pursuit of a better world for us all. He has held roles as Head of Product, Chief Technology Officer, Chief Operating Officer, et. al. but loves nothing more than to roll up his sleeves and get his hand in the dirt with the extraordinary teams he has had the good fortune to serve.

Episode Highlights:

[00:00:47]: Welcome & The Complexity of Cloud Costs

[00:02:01]: Introduction of Nick Lumsden and his career journey

[00:07:33]: Drivers for Solving the Cloud Cost Problem

[00:10:51]: Tenacity.AI

[00:14:04]: Cloud Cost Data

[00:17:30]: Mapping Costs to Business Value

[00:20:16]: AI and Analyzing Cloud Costs

[00:22:43]: Success Stories

[00:27:02]: Crystal Balling the Future of Cloud Cost Optimization

[00:29:56]: What You Should Do Tomorrow

[00:31:59]: Contact Information and Close

Episode Transcript

Nick Lumsden [00:00:00]:

For forensics, you have to be able to get down to microtransactions, but nobody wants to look at that natively. You do not want to look at 32 terabytes of transactions for the last month. You just don’t. That’s millions upon millions of rows of data. So, we think in three levels because now you’re marrying organizations, procurement, finance, the different lines of business with engineering to actually have conversations about that spend.

Jeff Ton [00:00:47]:

Welcome to Status Go!

Jeff Ton [00:00:49]:

I’m your host, Jeff Ton. As regular listeners of this show know, we are in the midst of a series – Myth Busters, where we are destroying myths that surround the cloud, security, and innovation. The myth we are attacking in June is that the cloud is too expensive. Understanding your cloud invoice can be, well, kind of intimidating. Even though the cloud is just beyond its infancy, maybe you’d call it a toddler, maybe it’s a teenager, it seems we have created a billing and invoicing system so complex that it would make the telecom operators blush. Getting control of your cloud cost is so difficult, it has spawned new services and new tools to help you and your team make sense of it all. In this episode, we’re going to chat with Nick Lumsden. Nick is one of the founders of Tenacity, a cloud cost optimization platform built on an AI backbone. He is here today to help us make sense of all of our cloud costs. So, Nick, welcome to status.

Nick Lumsden [00:01:56]:

Thanks so much, Jeff. Really appreciate you having me on the show.

Jeff Ton [00:02:01]:

For our listeners, it’s kind of interesting because I was just a guest on Nick’s show, the Cloud Cost Optimization podcast. In fact, we just recorded it an hour ago as we’re recording this, so there’ll probably be some bleed over from that conversation. But I really love, Nick, to spend time at the beginning of our episodes for our audience to get to know our guests. And I usually have our guests share a bit about their career journeys. However, before we get to that, I’d like to read the opening paragraph from your LinkedIn profile because I think it says a lot about you. So, bear with me here.

A builder, a rebel, an inveterate contrarian, with more luck friends and great teachers than raw talent. All to whom I owe a deep debt of gratitude. A lifelong student tending to question the assumptions I encounter in the world, forever asking, well, why? My passion burns in the pursuit of a better world around me. To pay it back and to pay it forward. This is what propels me from bed every morning.

Man, that is such an awesome paragraph. I know you and I have been connected on LinkedIn for a couple of years now. We were in the same market for a number of years. And I just love that introduction because with the little that I know about you, that says everything that our listeners need to know. But what would you add to that for your background?

Nick Lumsden [00:03:41]:

Well, thanks, Jeff. I appreciate that. Gosh, you stumbled me up there. You surprised me with reading that. Thank you. I have had an incredible journey in my career. I have been just incredibly fortunate to be in some amazing places and been a part of some amazing things happening in the world. I would describe myself as a serial entrepreneur, early-stage guy. I love early stage companies, especially the growth stage. That’s where the most fun happens, in my opinion. It’s also the hardest work. It is when you I do speak about kind of work life and priorities and how you manage your life. But it is also my favorite stage, is the one where you work a ton. Yeah. But you get to see the rewards. It’s a little like building a house. Right. It’s a lot of hard work, but at the end of the day, you get to look at it and go, my gosh, I built that. Right. That’s an incredible thing. And it’s rare in the work world, in the corporate world, when you work in a really big organization, sometimes it’s hard to look at what you did for a year or two or three and say, I built that. It is hard. And I think that’s why I like growth stage.

So that’s kind of who I am at my core. I have been in technology for 25 plus years, in leadership for 25 ish years, and started my first business out of college, made all the mistakes that early entrepreneurs make, and then some. I ultimately failed. I failed at my first business. It was one of the hardest things I went through at the time, but in hindsight, one of the best things that ever happened to me, because I got to look at the rest of my career through that lens. And I went out to the East Coast. I actually worked in a startup out there that was in the healthcare space in the late 2000s, mid to late 2000s, we were building the second largest medical data set in the United States. The only one larger was the Blue Network. So, think Blue Cross Blue Shield.

We had over 100 million lives in that database in 14 to 15 years of their medical data. And, of course, this is a highly secure, highly compliant arena where we de-identify data and so on. But in that journey, seven years at that organization, it grew to over 5000 employees. I was one of the first few employees, and it grew to 5000 employees. Massive valuation. But more important was we were changing things in healthcare through data, through being able to look at actual real people, what was happening, what were their comorbidities, what were their treatments and what were those outcomes? And able to go in and actually change health care in the arena of, say, chronic care, things like, how do you change prospects for someone who has diabetes and maybe the complication of heart disease, who isn’t going to their doctor, who isn’t regularly taking their insulin, et cetera? We were answering those sorts of questions. Fundamentally changing health care by looking at it from a financial lens, because that’s the motivator for the payers, right. The health insurance companies, they need a financial lens. So, if I can go find an answer and give them a financial lens, happy to dig into all of that, because that was a great part of my career and I learned so much. I went on to work for a serial entrepreneur myself, came back to Michigan, been in the cloud hosting space, had a successful exit, took a little bit of time off and did some adventuring with my family, and came back to start Tenacity, three years ago as of the day of the recording.

Jeff Ton [00:07:33]:

Wow. Congratulations. Three years. That’s awesome. That’s awesome. Well, and it’s when you were in the cloud hosting space, I think that you and I first connected, right? Online tech, as I recall. Yeah. So, it sounds like even though you were in the healthcare space, it had this financial bent. And I know our conversation earlier this morning on your program was all about financial accountability. So why a cloud cost optimization platform? What sparked that problem solver in you to go attack this as your next entrepreneurship?

Nick Lumsden [00:08:17]:

Yeah, it is really born of all the scars and experiences of the previous 20 years, in that I’m a computer scientist by education, I am a software developer by trade. And one of the hard things I ran into in my career as we were especially in rapid growth companies, as you’re delivering, you’re selling to a customer, you come up with sort of cost of goods sold, this unit, economics. And when you’re early in your career, you don’t understand all those things. You’re just trying to build what we would call like, a functional unit. Like, I sold this customer, I needed to deploy this thing. And what was really difficult is that hardware platforms we were delivering in the data center, there might be, I don’t know, a dozen, two dozen components, and then they’re all interconnected by another several dozen different hardware components. And suddenly, I have 50 or 100 different vendors or manufacturers of hardware, and it’s really hard to actually go get the data out of that. Right? Even if they had a way for me to get it through their firmware or through an API, I would have to write all those different interconnects. I would have to interpret all of that data.

And so, getting that sort of telemetry was extremely difficult, and we tried to solve it so many different ways over my career, over the past two decades, we tried to buy monitoring solutions. We tried to build APMs, application performance monitoring. We tried to get data from logs from all sorts of different angles from a security aspect. And I would, at this point in my career, say none of those were successful. They’re all valiant efforts, but none of those were successful. What changed was when AWS came along, when Azure came along, public cloud turned all of the hardware infrastructure into software. And at that moment, all of that data, what I’ll call the metadata about an environment, suddenly became available to people like me, developers. And that created an interesting opportunity to now turn the cost management problem into a big data problem, as opposed to it being kind of a spreadsheet-gymnastics-capital-expenditure-financial sort of look at it. We can now do interesting things with big data, and we’re starting to do interesting things with AI as well.

Jeff Ton [00:10:51]:

I think that is such a great recognition of a pivot point, right? This hardware became software, which all of a sudden turns it into data. So, talk to us a little bit about…I don’t want you to give away any of your intellectual property or anything like that, I’m not asking for any of that…but tell us a little bit about the Tenacity platform. And for our listeners, we’re probably going to take a little bit deeper dive on this from a product perspective than we typically do because I find this platform fascinating. So, Nick, tell us a little bit more about the platform.

Nick Lumsden [00:11:32]:

Yeah, absolutely. So, I’ll first say that it is a software-as-a-service platform that we have built. And there’s a reason for that. I’ll explain that in just a second. But it’s also Tenacity.AI itself. We back it with Human Services. And the reason that we do that is we have found that and we could talk about this problem historically, but we have found that being able to have a coach, being able to have advisors who are right along with you in the data, in the depth of the data, in aligning it to your business, it just makes you go so much faster.

And so, we actually deliver these services on top. We’ll even do full service. We’ll even come in and implement frameworks for managing your cloud financials with the solution.

But let’s go back to the platform. So, the platform is SaaS software as a service. What it does is it plugs into our customers’ public Cloud presence, whether they’re in AWS or Azure. Soon we’ll support Google and a handful of others that are used globally. And we consume what I’ll call all the metadata about that environment, and not the actual data, not the data they’re storing there, they’re processing for their business, but the information about that infrastructure and about that data, including what they’re spending, how are they utilizing it, who started it, who owns it, how is it configured, et cetera. And we pull all of that in, and we start doing analytics on it.

Some of that stuff is really simple, like just trending. Is the cost on a specific unit going up, is it going down, et cetera? But we’re also doing complex detection of, say, anomalies are there a set of things that are working together, and they have a normal and one day of the month they fall outside of normal, they cost 100 times more for that one day. Well, why is that? We want to isolate that in the data and go do forensics that’s a human needs to go do those forensics. Right?

So, there are all sorts of things that we can do with that what I’ll call the telemetry, the data about the data there that’s coming out of the system. But that in a nutshell, is the platform. We’ve turned all of this data about the cloud into a big data problem. And we’ve built a platform by which you can go view, explore, see interesting KPIs about that data, and start to actually align it to your business. I’ll go into that in just a second.

Jeff Ton [00:14:04]:

How much of that data do you expose to your customers, your clients, or is it all at the aggregate level? And talk a little bit about that?

Nick Lumsden [00:14:21]:

Yeah, so we think in three levels. So to answer your question quickly, they can get to all of it because we believe that forensics, for forensics you have to be able to get down to microtransactions. but nobody wants to look at that natively. You do not want to look at 32 terabytes of transactions for the last month. You just don’t. That’s millions upon millions of rows of data.

So we think in a top level, there is a top set of KPIs that are just really important that every organization wants to understand. And so those are omnipresent in the platform. And depending on the organization, it could be different things. For instance, for an organization that’s really focused on minimizing cost, it would be their effective savings, right? They just want to measure, am I maintaining the savings I need to maintain? Right, that’s one way for another organization it might be if they’re public, for instance, if they’re a public organization, their CFO is less focused on savings and more focused on variance and making sure your spending is staying at budget because they have projections for the next quarter. So we can actually measure the variance and show them that. We can show them how they’re forecasting out. And so that’s a macro condition that they can look at.

Then we look at really what’s the operational data. So we have dashboards and analysis that show them operationally the actions they should take. How are they performing overtime on their budget? Can they actually improve it? Does the forecast look like it’s going to improve? Are there anomalies they need to look at in how we think about the operational piece. This is what I said I was going to come back to, is that when our customers come on board, we help them align all of their cloud spending with the business. And it takes some effort, but this is the very first step into really implementing a concept called FinOps, which is what organizations are trying to adopt across the industry when they’re in the cloud, especially with significant spending, and we help them map that out. So now that all their cloud data becomes business contextual.

Well, now in our platform that operational data, instead of it being techy technical data about this service doing this and that service doing that, and this database is all that. You can go view that if you want to, but we remove it back to the business layer so that you can go in and say app one does this. Line of business two does this. This department now has this cost because now you’re marrying organizations, procurement, finance, and the different lines of business with engineering.

Jeff Ton [00:17:30]:

And today, we are busting the myth that the cloud is too expensive. And our guest Nick from Tenacity is here. And we were talking about aligning the cloud spend with the cloud costs with the business units. And this goes back to the conversation you and I were having on your show, Nick, about cost accountability, technology cost accountability, and sometimes we don’t have that visibility to “this server does this for the business,” right? We lose that, especially in the smaller organizations. And so, talk to us more about your process for guiding someone through that mapping process.

Nick Lumsden [00:18:33]:

Yeah, absolutely. When we start that journey, we’re looking at identifying within the business who are the stakeholders that are critical, and they’re going to help us understand maybe they have only one product that’s very simple, that would be a smaller organization. But many organizations have several lines of business supported by different applications of varying scale. And we want to identify what those are and then go into their environment and start identifying what components align directly to those lines of revenue, what components are shared, and what components sit outside of that, such as development environments or maybe systems for corporate finance or their back office, et cetera.

And the thing we help them do. Because this is an Iterative process. You inform, you optimize, you operate, and then you go right back to inform. And you keep doing this is not to get hung up in somehow. I have to allocate and hold accountable everyone right away, let’s just try and get one piece done. We’ll get a small part done that we understand, get it implemented. When the business starts to see that value when they can start to understand, well, how much am I actually spending when I sell a unit? What are my unit cost economics? Can I actually now pull a lever on unit cost economics as opposed to going to It and saying cut costs by 30%? I can now say, well, wait a minute, the cost of our product is X. Could I do it much more efficiently, or is all of this necessary? It just changes the conversation. It really does cause collaboration. When you have this data to actually look at and start making data-driven decisions. Accountability starts to emerge.

Jeff Ton [00:20:16]:

Well, and you mentioned this earlier that you’re starting to use AI for some of this analysis. And in fact, the URL of your company is Tenacity.AI. Where does AI play a role in this process? The process of analyzing these costs, mapping it to the business and helping drive the outcomes that the client is looking to drive?

Nick Lumsden [00:20:44]:

Absolutely. So there’s a couple of areas where AI plays right now, and there’s some areas where AI is going to play a really large role in what’s coming very soon. So first is, and I think this is an easy concept, is anomaly detection. Because anomalies that the human eye can spot, like a bump in a trendline, that’s easy. But when you start taking tens of thousands, hundreds of thousands, millions of data points and you need to understand what normal is, that’s really hard for a human to do. It’s actually pretty easy for a machine to do. And the machine will do this consistently over and over and over. I can keep feeding it new data every month. It’ll continue to learn and then it’ll spot those anomalies. For me, that’s the simplest kind of AI that we can apply to the problem.

Forecasting is another area. Forecasting can be hard using a simple moving average, that can be difficult because it always turns asymptotic. I don’t know if anybody’s done the math on that. If you’ve been in any sort of data analysis, you sort of know some of the problems with some of the ways that you do forecasting. AI actually does a pretty good job here. And this can help in terms of like, setting future budgets, actually trying to project ahead 18 months out. What will my budget actually look like?

Those are some of the places it plays right now. Where it will play in the future is the ability to look at the spending you have right now and compare it to spending, maybe that others who are on the same journey are doing in the cloud as they’re transitioning, as they’re transforming, as they’re modernizing, and actually help you project where there’s areas you can make improvement and then help you identify what the cost benefits will be of that.

When we look to say generative AI, we could say, well, actually, could you generate for me the code necessary to go make this change in my infrastructure? Those are areas where AI is going to play a bigger role.

Jeff Ton [00:22:43]:

We’ve been talking a lot about generative AI on this program, and our conversation this morning brought to mind the conversation that a friend of mine was having on LinkedIn about generative AI and IT and business alignment. And I don’t want to get into all of that, but it was an interesting use of AI to see if it actually learned through the conversation.

So you guys have been in business now for three years. You mentioned that. Can you share a couple of success stories of customers that you’ve helped? Again, keep in mind we’re busting the myth that the cloud is too expensive. So are there customers that you have in your portfolio where maybe they were skeptical or maybe not, but you helped them manage those costs in their operations?

Nick Lumsden [00:23:45]:

Yeah, I’ll give you a couple of examples of problems where very clearly there was a problem and we came in and solved it. But I want to frame this up first by saying there’s this incredible power in this microtransaction model, this consumption-based or variable spending model of public cloud in that it has, because of the great power you have, the ability to write code and deploy infrastructure. It has the ability to be way more efficient than any way we’ve ever deployed technology in the past. Because in the past we did a capital expenditure. We looked three to five years out. We bought a bunch of capacity upfront, amortized, depreciated out. We kind of fixed a cost over five years.

Jeff Ton [00:24:25]:

That stairstep.

Nick Lumsden [00:24:27]:

Yeah, that’s right. And we’re fixing a cost for the needs five years from now. With cloud, I can actually spend based on my needs in the moment, which is a way more efficient model. But I’ll also tell you that almost no one is doing this. And that’s because old ideologies creep into cloud. They really do. And so there is this ability to go the wrong direction. Cloud in and of itself is not more expensive. Cloud is actually fundamentally way cheaper when done well than the traditional method.

So let’s talk about some of the success stories. So I can talk about one customer. Where we went in, they were really struggling with large cloud spend and holding their business accountable. And what they were doing is they were putting a software engineer who is very highly compensated on a project for almost one week per month. So almost a quarter of their time was being spent basically pulling out all this data and aggregating it into…putting in a database. It was terabytes and terabytes of billing file aggregating into something that was actually interpretable by a human being. And then they were having to spend a ton of effort going out to all their various business units. There were over 100 stakeholders that they needed to talk to across this almost two dozen lines of business. And they were unable, they would get beat up from the perspective of you need to cut costs, but they were unable really to kind of hold the business units accountable.

How Tenacity came in and helped solve that problem was our platform completely eliminates that software engineers need. Within 15 minutes they were set up. We’re already consuming the data; we’re consuming it daily, and we’re starting to show them reporting that they can actually now sit down with their business leaders and have business contextual conversations around how they’re spending.

And two outcomes happened. One is, yes, of course they found places where they could optimize their spending, they could drive better unit economics, but they also found some areas where they were getting hammered, they were getting beat up about costs going up by 20 or 30% in very specific areas. And they were able to show that those costs were aligned with the fastest-growing line of business, which was doubling in its revenue. So actually, going up at 20 or 30% when the business is doubling was actually really efficient. So, it turned the story around and allowed them to have a positive conversation internally. That’s one of the success stories.

Jeff Ton [00:27:02]:

That’s incredible because otherwise you’d look at this, I won’t use the word anomaly the way that you have used it to describe the process, but you look at this, all of a sudden, this increase in cost in an area, you’re going to be like, we got to shut that thing down, we got to control it. Right? And no, because it’s really helping this business unit. That’s fabulous.

Nick, you mentioned a little bit about the future when we were talking about AI a few minutes ago. But I’d love for you to crystal ball a little bit. What’s the future of cloud cost optimization that you see from your seat?

Nick Lumsden [00:27:49]:

Well, first of all, I’m going to talk about the movements that are happening in the industry. So FinOps is happening. It’s a movement just like Agile, just like when we were using ITIL back in…20 years ago, bringing better operational methodologies, operational excellence, bringing better development methodologies, moving away from waterfall, and becoming more responsive to our customers.

FinOps is the framework that’s moving in place in order to take advantage of the variability of cloud spending. And by the way, right now, it’s focused on infrastructure, AWS, Azure, et cetera. But that’s not the superpower of cloud. 90% of workloads are still on site, right? Only 10% are really in the cloud. But think about as a business, all the platforms that have now moved into the cloud as software-as-a-service. Your CRM, your HR platforms, all of this, that’s all going to fall under this umbrella of financial operations, which it’s actually a portmanteau of finance and DevOps.

So it’s really thinking in terms of how do I automate and align my engineers with financial accountability. This is going to be rolling into every organization. And organizations at scale in the cloud, moving towards the cloud, need to be thinking about this practice internally, not slamming it in place. You don’t have to heavy-handed put it in, but be thinking about how that practice is going to evolve and mature inside of the organization. That’s prediction one.

Two is I think that you’re going to see far more data-driven decisions inside of organizations when it comes to technology that has been absent for decades. It’s been really hard for us to wrap our head around it. We’ve tried. The time is here when we can actually make real data-driven decisions around how technology aligns to the business instead of, as you so elegantly put it before, is not trying to buy tech that reduces the cost of tech. Right? That’s not what we want to be doing. That’s right.

Jeff Ton [00:29:56]:

Kind of that oxymoron, right? Well, Nick, it has been such a pleasure to chat with you. I feel like we’ve been talking all morning because we talked on your show, and now we’ve talked here on Status Go. And one of the things I warned you about is that we would wrap up the show with a call to action for our listeners. So, what are one or two things that our listeners should go do tomorrow because they listen to our conversation today?

Nick Lumsden [00:30:27]:

Well, I’ll do the self-plug first. The Cloud Cost Optimization podcast. If you’re in the cloud, you’re spending money there, just go subscribe download it. Feel free to give us feedback, but it’s an easy call to action. Just go put it in your podcast feeder and start listening. We’re trying to provide value in every show. We have excellent guests like Jeff on the show to help talk about the real topics going on inside of organizations and around this problem of financial accountability and cloud spending and cloud economics. So that’s one.

Two is a lot of folks get stuck in their cloud transition, and that almost always is due to a communication problem inside of organizations. And I would say the call to action here is to make sure that you’re reaching across the aisle, whether you’re in the engineering seat or whether you’re in the CFO seat or the procurement seat, wherever you are, making sure that you’re working together on these initiatives. If you’re struggling with that, reach out to Tenacity. We’ve been doing this forever, so we’re happy to come in and plug in and help advise and talk to folks like Jeff. I mean, really, Jeff’s got 40 years experience with exactly this problem in probably a conversation or two, you would be pointed in the right direction.

So, I know that’s a little bit higher of a call to action to reach out, but trust me, inside of your organizations, you want to be collaborating, call on us. We’re happy to drop in and help you out.

Jeff Ton [00:31:59]:

Well, Nick, I think those are great actions that our listeners can take immediately to help them on their cloud journey. Where can they get in touch with you? What’s the best way for them to reach you? Nick, you mentioned the podcast. How else?

Nick Lumsden [00:32:16]:

Yeah, absolutely. So super easy. You can find me on LinkedIn all the time, just send me a request. I’m always happy to connect. I will give anyone 25-30 minutes of my time. So if you want to chat, I’ll hop on a call with you anytime. You can find us at Tenacity.AI. You can find us on Twitter at tenacitycloud. And you can also go find us out on Reddit /r/cloudcostoptimization. There’s always conversations going on. Go ahead and Lurk, drop your questions in there. We’ll discuss them on the show. Those are places you can find me.

Jeff Ton [00:32:49]:

That’s awesome. And I can say after 210 plus episodes, that’s the first Reddit reference that I think we’ve had. That is awesome. That’s awesome. Nick, thank you so much. I really appreciate you responding to my reaching out to you on LinkedIn. I appreciate that. Appreciate the opportunity to be on your show, and I really appreciate you being on Status Go today.

Nick Lumsden [00:33:14]:

Jeff, thank you so much for having me. This is wonderful.

Jeff Ton [00:33:17]:

Appreciate it to our listeners. If you have a question or want to learn more, visit InterVision.com. If you want to see more about the myths we are busting, visit intervision.com/myths. The show notes will provide links and contact information. This is Jeff Ton for Nick Lumsden. Thank you very much for listening.