Ask HN: Private Cloud for a Small Business?

I'm looking for advice. I work for a small business, currently operating a SaaS on a handful of medium EC2 instances. The app is connected to a database in a different country, and to minimize latency, we're contemplating leaving AWS, and getting hosting next to it.

Unfortunately major cloud providers are nowhere near the area, so programmatic infra goes out the window. However, high availability is still expected, and the bosses are very cost-sensitive. Talk about requirements!

For these reasons, we thought of renting 3 entry level physical servers, deploying a virtualization platform (oVirt), and wiring them up for replication, load balancing and automatic failover. This private cloud should vastly exceed the capacity currently bought from Amazon, and should also tolerate one of the machines breaking down (with KVM's live migration).

However, my team has a software development background, so we're not completely sure what we're getting ourselves into in terms of networking setup, hardware health monitoring and virtualization wizardry.

Under what conditions do you think all this is worth learning more about? What are the alternatives apart from getting a bunch of VPSes and dealing with failover on a per instance basis? How would we prepare a sandbox in the office before just doing it live? Am I completely mad even to entertain the idea of a private cloud for a small company?

Thanks!