This MSP finally started experiencing year-over-year double-digit profits in managed services after making a few changes to its processes.
There’s a saying that’s arguably attributed to Charles Darwin that “It is not the strongest of the species that survives, nor the most intelligent, but rather the one most adaptable to change.” Regardless of whether Darwin really said this or not, it does accurately describe the channel. No channel company understands this reality more than CompuWorks, an IT solutions and managed services provider (MSP) that’s celebrating its 28th year in business this year. Cofounder and Vice President Alan Bauman (the salesman) and Cofounder and President David Hall (the technician) started CompuWorks at a time when most SMBs kept track of their finances in double-entry ledgers and used typewriters as their primary form of correspondence. Throughout the years, CompuWorks survived the stock market crash of 1987, Y2K, the Dot Com Bubble (2000-2001), and the stock market crash of 2008, in addition to a myriad of changes in the IT landscape, as a result of learning to adapt. In the latest chapter of CompuWorks’ evolution, which began in 2008, the company entered the managed services market. Like many challenges it’s faced over the years, success didn’t happen overnight. But, true to form, CompuWorks persevered until it found the blueprint to managed services success.
Identifying, Overcoming Managed Services Roadblocks
Through Bauman’s and Hall’s affiliation with the Tech Data TechSelect partner community group, they recognized that managed services was going to become the next big thing in IT services, and the concept made a lot of sense for its business as well as for its clients. Instead of waiting for IT issues to arise and scrambling to troubleshoot problems after the fact (i.e. the breakfix method), clients’ computers and servers could be remotely monitored, and problems could be addressed right away and in some cases prevented (i.e., the managed services model). For example, when a server’s capacity approaches 100 percent, backups fail, and the server experiences additional performance problems. In a managed services environment, the MSP is alerted when the server capacity reaches 75 percent, which allows the MSP to communicate a resolution plan with the client well before problems begin.
Although the managed services model made sense to CompuWorks, the MSP discovered several obstacles that kept its new offering growing at a snail’s pace for the next four years. Following are the top five obstacles it had to overcome:
1. Managed Services Has A Different Sales Process From Break-Fix. In a break-fix environment, salespeople are focused on selling “IT stuff” (i.e., computers, servers, routers, firewalls, and software licenses), which often entails bringing in a sales engineer and doing a technology deep dive to earn a customer’s business. In a managed services environment, on the other hand, salespeople are focused on the prospect’s business challenges, and the technology takes a backseat to this consultative business discussion. In some cases, the technical details of the solution don’t come into play until after the deal is inked.
Additionally, although the total revenue in a managed services sale eventually surpasses the immediate gratification of a project-based sale, it requires patience and discipline on the part of the salesperson — traits that are more difficult to find/ harness than many VARs-turned- MSPs anticipate.
“We saw several companies try to go all in with managed services, and they destroyed their company as a result,” says Hall. “We were very cautious about the fact that we needed to continue offering both models, and we needed to avoid pitting the two models against each other.” Hall says it required a lot of conversations with the sales and technical support teams, and, in the end, what made it work was turning the focus back to the customer. “Managed services is about creating and maintaining a healthy IT environment for your clients,” says Hall. “Looking back, this is where we could have really blown it, but challenging reluctant team members with questions such as, ‘Do you really want your clients to get hit with viruses or experience downtime before we can help them?’ was a key part of working through this transition.”
2. Managed Services Businesses Are Driven By A Whole New Set Of KPIs (Key Performance Indicators). In the break-fix model, the important KPIs — product margins and labor margins — are pretty straightforward to understand and manage: Every time a customer’s computers or network breaks, you send someone to fix the problem, keep track of how many hours it takes, and charge the customer accordingly. In a managed services environment, on the other hand, the goal is to never have downtime, which makes it a lot trickier — and more sophisticated — to determine the correct pricing model. “One of the keys to solving this challenge was replacing a customized service management tool we used with the ConnectWise PSA [professional services automation] tool,” says Bauman. “For the first couple of years we barely scratched the surface of the PSA tool’s capabilities; it was like driving a Ferrari in first gear.” (See page 16 for more information about ConnectWise’s role in CompuWorks’ managed services success.) “Today, our service desk relies heavily on our PSA to measure our service response times against our SLAs [service level agreements], and we’re tracking metrics such as client satisfaction ratings, response and resolution times, and SLA performance — and reviewing results with our customers and using the metrics to constantly improve our performance.”
3. What Should Be Included In A Managed Services Offering? Despite working through a couple of major managed services challenges on its own, the fundamental question of what to include in its managed services offering didn’t come to fruition for CompuWorks until 2012. It was during a conference breakout session led by managed services veteran and mentor Gary Pica, founder of TruMethods, that Bauman and Hall had a collective aha moment. “As a successful MSP, Gary understood our business challenges, and he was able to quickly help us come up with a good strategy,” says Bauman. Continuing with the “healthy IT environment” mindset it had adopted earlier, CompuWorks (with Pica’s help) developed HealthyIT, its branded, full-service managed services offering. “HealthyIT includes remote monitoring and management [RMM], backup and disaster recovery [BDR], and network protection [i.e., antivirus and firewall], plus strategic planning and helpdesk support — all for a monthly flat fee,” says Bauman.
Unlike some other MSPs that have various packages (e.g., silver, gold, platinum), CompuWorks has only one offering. “We do occasionally run into objec tions, if, for example, a client recently spent money on a particular antivirus offering that’s different from the brand we use with our HealthyIT offering,” admits Hall. “But, the reality is that a customer that buys our managed services program is buying our expertise, which includes bringing in the right vendors, and any objections we encounter are usually nonissues.”
The MSP finds that its best managed services candidates are new prospects, not the clients that have become used to the old way of managing their IT environments. “We’ve accepted that this is the way it is, and rather than disrupting perfectly good business relationships, we’ve focused most of our managed services sales efforts on new business opportunities,” says Bauman. “Currently, managed services revenue represents 15 percent of our overall revenue, and we’re seeing this number continue to grow.”
4. Defining The “Edges” Of Your Managed Services Offering. As important as it was to define what to include in its managed services offering, Bauman and Hall agree that settling on what not to include was equally as important. The duo refers to this process as defining the edges, and they attribute much of the success in this area to TruMethods’ guidance, also. “Even in a stable managed services environment, there are still lots of anomalies that arise that MSPs need to prepare for ahead of time, or they risk hurting their profit margins,” says Bauman. “For example, a managed services client is reorganizing its work area and needs help relocating work stations — should that be included in your ‘all you can eat’ managed services contract or not? Or, a client needs a new printer installed in the accounting department — should that be included in your plan or not?” The rule CompuWorks established (again with Tru- Methods’ assistance) was that anything that constituted a change in the customer’s environment was treated as a special project and therefore was billed separately from the managed services contract.
5. Setting The Right Managed Services Price. As more IT solutions providers start selling managed services, pricing becomes a prominent issue. On the one hand, to remain competitive, you don’t want to charge too much. On the other hand, however, charging too little can be just as detrimental. CompuWorks discovered that MSPs can’t even begin to determine their pricing until two things happen:
David Hall, cofounder and president, CompuWorks
“Our documentation was very ad hoc before selling managed services, but you can’t afford to operate that way with managed services,” says Hall. “For example, for each managed services customer you need to know key details about their environment such as their IP addresses, network credentials, and network diagram. And you need to consistently capture and document this information so that any technician can troubleshoot a problem. For example, if an alert pops up on a screen revealing that a computer isn’t working properly, you don’t want to spend a half hour with the client on the phone trying to figure out where that computer is located and who the user is that’s having the issue.”
As part of its new client onboarding process, CompuWorks uses a 100-question BPA (best practices assessment) to capture these important details up front. “We even use an abbreviated version of our BPA for our professional services clients, which enables us to troubleshoot their IT issues more efficiently, too,” says Hall.
Between the data captured with its PSA and its BPA, CompuWorks has full confidence in its pricing, which is particularly handy when a competitor tries to steal a client or prospect by offering a lower price. “We know that, when a competitor underbids us, it doesn’t have a sustainable business model — and it’s either going to cut corners on its service, or it’s not going to remain in business very long,” says Hall. “We overcome price objections by sharing the facts with prospects about all that goes into providing managed services. Having these facts handy makes all the difference.”
A Managed Services Foundation Paves The Way For Cloud Services
CompuWorks’ net profitability was 19 percent last year, which includes a mix of managed services, professional services, and other sources such as product sales and IT consulting services. Although managed services still comprises a relatively small portion of the MSP’s overall revenue, Bauman and Hall say that it’s a significant and growing portion of their business. Additionally, the MSP sees its managed services program as a good foundation for the next chapter in its evolution. “We’re currently evaluating new offerings such as HaaS [Hardware-as-a-Service], MDM [mobile device management], and cloud services,” says Bauman. “Virtually all clients are using some kind of cloud service nowadays, and we believe the hybrid IT environment is becoming the new norm. We expect there will be new lessons to learn along the way as we continue to grow, but the blueprint we’ve already built with our managed services offering will make this transition much smoother and easier to adapt to than our last one.”