A VAR's Ascent To The Managed Services Summit
By Jay McCall
After years of selling break-fix IT services, this VAR-turned-MSP figured out the secret to double-digit revenue growth and recurring revenue.
If you plan to climb Mount Everest (or any of the mountains in the Himalayas, for that matter), it’s a well-known fact that you’ll need to hire a Sherpa — a Nepalese who provides support for foreign trekkers and mountain climbers. Keep in mind that a good Sherpa isn’t cheap; you could pay up to $80,000 for your climbing expedition. But, when you consider that these skilled navigators may literally save your life, you probably won’t try to find the cheapest one.
This was the image Greg Gurev had in mind when he started MySherpa 13 years ago after losing his job of eight years as a director of sales at a technical staffing agency. Even though at the time Gurev was only a self-taught computer programmer and computer repair hobbyist, he had a love for technology and saw the growing importance IT was playing in the workplace. And, although he had never actually climbed a tall mountain, he was intrigued by mountain climbing and saw the role of the Sherpa as the perfect analogy of what an IT service provider is supposed to be for its clients. After beginning the transition to managed services five years ago — and refining its managed services offering three years ago — the Sherpa analogy has become even more relevant to how he conducts and grows his business.
Create A Managed Services Litmus Test
One of the discoveries MySherpa made over the years was that no matter which vertical market clients fit into, they need very similar IT infrastructure and network security basics: backup, firewall, and security. For a typical SMB client with 25 computers, this could require an up-front investment of $5,000 to $10,000 in software licenses and server costs in addition to ongoing monthly managed services fees for remote monitoring and management. “This initial discussion sets the tone for what kind of business relationship we’re going to have with a new client,” says Gurev. “It often comes down to the prospect’s philosophy whether they believe they need an outside expert who can help them achieve peak business performance while minimizing security risks and unplanned downtime or whether they think they can do a better job themselves.”
In order to properly assess a prospect’s attitude toward outsourced IT services, Gurev has learned that it’s important to engage with the proper decision maker, who most often turns out to be the CFO. “CFOs are trusted by business owners, and they are responsible for the complex accounting, financials, and payroll applications that run the business,” says Gurev. “Most CFOs we come across are in their mid-40s, don’t have in-depth computer knowledge, and have already been tortured by vendors trying to push their latest products.”
One of the first questions MySherpa salespeople ask CFOs early in the sales process is this: “Do you have maintenance and support on your applications and IT systems?” If the answer is “No, we don’t believe in that,” “We can’t afford it,” or something similar, the sales Sherpas engage clients in a discussion about the value of their data. (For specific statistics and advice related to educating clients about the value of their data, check out: “2013 State of Cloud Backup: MSPs Missing the Mark.”) “When we come across a CFO who doesn’t seem to care about the threat of data loss or downtime, we’ve learned that it’s better to walk away from the sale rather than pleading for their business and/or lowering our costs,” says Gurev. “The bottom line is that we know IT and what it takes to keep businesses running, and it’s not sustainable for an MSP to make too many exceptions for each client.”
Gurev uses the analogy of troubleshooting a four-yearold computer that’s been severely infected by a virus or a hard drive malfunction. “If a customer is on a managed services plan, we’ll replace the computer with a new one rather than wasting a lot of time with equipment that’s already near the end of its lifecycle,” he says. If an MSP allows some customers to pay-as-they-go, the scenario is a lot different. A technician’s labor can quickly surpass the value of the hardware, but the customer does not want to (and often won’t) pay a service charge that exceeds the replacement value of the computer. Managed services, on the other hand, takes a longer term approach to IT and factors in the cost of replacing out-of-date hardware and software.
Part Ways With Clients Who Don’t Value Managed Services
Greg Gurev, MySherpa
Since implementing its managed services practice three years ago, MySherpa’s revenue is now composed of 71 percent from selling services and only 29 percent from selling products (e.g. backup appliances, servers, computers, and software). Additionally, any new client MySherpa has partnered with since January 2010 has been a managed services client — no exceptions. And, the MSP is firm in its resolution to phase out clients who continually resist MySherpa’s IT advice and don’t value its managed services business model. “As a business owner, you can only allow your margins and customer relationship to slip so far before you realize you may be better off parting ways,” says Gurev. “If a customer continually rejects our IT advice and/ or prevents us from interacting with the decision maker, or if they’re simply not polite and professional to work with, we’ll make the difficult decision to end the business relationship. Even in these exceptional situations, we give clients written notification and several months’ notice to find a replacement partner so as not to harm their business in any way.”
Don’t Be A Bottleneck To Your Sales Growth
If there’s one common pain point just about every VAR and MSP experiences — usually when it reaches the 6- to 10-employee mark, it’s stagnant revenue. For one reason or another, there seem to be just enough time and resources to keep the machine going, and the only purpose any new business seems to serve is offsetting business that’s been lost. Gurev found himself in this position about a year a half ago, and he recalls exactly when and how he found the resolution. “At the time, I was trying to do everything – bring in new business, service existing clients, and handle all the HR and accounting functions that come along with running a business,” he says. “During a Monday morning meeting, one of my engineers said, ‘The only way we’re going to fix our sales problem is if Greg does sales full time and someone else runs the company.’” The comment took Gurev a little by surprise, but he couldn’t deny the truth of the matter.
He started keeping track of how much time he’d been devoting specifically to sales over the previous months, and the numbers really surprised him. “Even though I was always very busy and felt productive, there were some weeks that I was spending only 2 hours of face-toface sales time, and the rest of my time was spent handling employee issues, client issues, and business issues,” he says. He knew if he really wanted to grow, he had to turn over control of his company to someone else.
In Q2 of 2013, Gurev promoted Ethan Tancredi from VP of operations to president of the company and committed to focusing on growing MySherpa’s sales. “It’s tough for a small business owner to give up control of his company, but the reality is that it’s absolutely necessary if you want to grow beyond a certain point,” says Gurev. “I believe that if you’re not building your business and driving real stakeholder value, then you need to make a change. I’d love to sell my company in 10 years and retire before I’m 60. It would be great to have the company in a position where the bank had enough confidence in our track record that it was willing to lend our employees the money to buy the business from me. We finished up 2013 with 25 percent higher revenue than the previous year. There’s every reason to think that if we can continue building our business with clients who understand how MySherpa can help with their IT expedition, we can continue achieving double-digit revenue growth for years to come.”