Magazine Article | November 15, 2013

Build A 100% Recurring-Revenue Business In The Financial Vertical

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By Jay McCall

A Canadian VAR transitions his business completely out of break-fix and into managed services by honing his expertise in the U.S. broker-dealer market.

Like many VARs and MSPs, Allan Lonz, president and CEO of AdvisorVault, got his business off the ground primarily by selling break-fix services, such as PC and server sales, implementations, and troubleshooting. However, not long into his new venture, Lonz recognized the predictable income model of managed services as being much more appealing, and he started looking for a way to make the transition. Over a two-year period, AdvisorVault evolved as Lonz figured out which vertical market he wanted to sell to and how he wanted to transition from the unpredictable world of break-fix to the predictable, steady income model of managed services. I caught up with Lonz recently, and he shared with me highlights of his business transformation from a break-fix VAR to where he is today, earning 100 percent of his income from recurring revenue.

Industry Expertise Is An MSP Must-Have
One of the biggest mistakes some VARs and MSPs make is believing that they can sell IT solutions and services across every vertical market. Even though in theory the backup and recovery solution you sell to a healthcare client could be the same solution you would sell to a customer in the banking and finance vertical, it’s important to understand why being too horizontally focused can be disadvantageous. For one thing, prospects in highly regulated industries may feel that you just don’t have enough experience in their market and that you may overlook a specific mandate that could harm their business.

One of the first things Lonz did after deciding to focus on managed services was to focus exclusively on the banking and finance market where he had the most interest and expertise. After further research, he identified a specific opportunity within this vertical. “I decided to focus on broker-dealer firms based in the United States only,” he says. “I made this decision based on a few criteria, including the fact that the U.S. market was much larger than the Canadian market, and it was much more heavily regulated than Canadian broker-dealer firms.”

Lonz next considered all the ways he could address the needs of his target market and came up with three specific services he could offer for a monthly fee: remote data backup, long-term archiving, and disaster recovery.

He also knew it would be important to become knowledgeable about FINRA (Financial Industry Regulatory Authority, Inc.) and SEC (Securities and Exchange Commission) regulations, since these were the two governing authorities for his customers’ industry. After reading through both organizations’ rules, Lonz discovered there were four primary sections where he needed to focus his attention: SEC 17a-3 (records requirements for certain exchange members, brokers, and dealers), SEC 17a-4 (books and records retention and archiving requirements), FINRA rule 3510 (rules for business continuity planning), and FINRA rule 3010 (rules for the supervision of member firms). After becoming well versed in these four areas, Lonz was ready for the next phase of his business transformation.

Use Engaging Content To Find Clients And Help Them Find You
After deciding his market niche and the services he wanted to sell, Lonz had to figure out how to reach the decision makers within his target audience and how he could make it easier for them to find him. “One nice thing about working with customers in a regulated industry is that everyone’s affiliated with the governing organizations,” he says. “Through FINRA I was able to obtain a list of all the broker-dealer firms, plus mailing addresses and email addresses.” Once Lonz had the lists, he began sending out mass emails on a regular basis, and over time he learned the formula for maximizing responses. “It’s not about overwhelming prospects with tons of content; rather it’s about sharing a few paragraphs of highly relevant information,” he says. Here are some examples of some of the headlines to his past direct mail and email newsletters with a summary of his messages:

Three Steps to Compliant Data Archiving. This message focuses on SEC rule 17a-4, which has very specific guidelines for retaining electronic records, including email, instant messaging, and social media. Lonz discusses the importance of archiving data using nonrewriteable media, and he emphasizes the importance of being able to retrieve data within 48-hours should broker-dealer firms ever be audited.

The Truth about Remote Backup. This message offers six features broker-dealer firms should look for in a remote backup provider. In this article, Lonz explains how most companies overwrite older data sets, keeping only 10 to 30 versions of changes, which puts them out of compliance with SEC and FINRA regulations. Dealers are required to keep all their data revisions for six years, which makes data archiving very important. “Non-rewriteable DVDs are a perfect technology for this because of their capacity, durability, and low cost,” he says in the article.

Three Tips for Choosing the D3P. The D3P (designated third party) is FINRA’s acronym for the designated storage provider a broker-dealer firm uses to store and archive its data. Lonz explains in this message that, “This regulation has serious consequences for FINRA firms and should form the basis of their data compliance strategy because the D3P should also act as the remote backup provider to archive electronic records in accordance with FINRA rules 17a-3 and 17a-4.” In addition to choosing a D3P that offers remote data archiving, Lonz advises firms to choose a D3P that uses “at flight and at rest data encryption.” And, finally, he advises broker-dealer firms to look for a “payas- you-grow” pricing model, so they can control their data compliance costs.

In addition to reaching his target audience through direct mail and email newsletters, Lonz updated his website, and he continues to keep it populated with fresh content that educates his audience about FINRA and SEC compliance — and AdvisorVault’s unique ability to help broker-dealers. “I’ve always paid close attention to the terms that are important to the dealers, and I made sure my website and all messaging included these terms,” he says. How successful has Lonz been at figuring out Google’s elusive SEO (search engine optimization) formula? If you type “brokerdealer compliance and backup” into a Google search engine, AdvisorVault is not only on the first page of the search return, it’s also the first listing in the natural search results section. “We’ve never paid a penny for Google ad words,” says Lonz. “We’ve only ever focused on natural search relevancy by providing educational content.”

It took AdvisorVault about two years of implementing and honing its plan before it became profitable with the new business model. However, since that time it has experienced steady growth, and today the MSP doesn’t need to do any cold calling — all sales are initiated online and/or via email. For every 10 leads AdvisorVault picks up each month, it gains 1 new customer. The MSP currently has 80 customers purchasing its bundled offering, which includes a combination of KineticD remote data backup, archiving, and disaster recovery (see sidebar for more information about this partnership), plus FuseMail’s email archiving solution — all white labeled under the Advisor- Vault branding. “The key is keeping your contact list up to date, so that you can increase your chances of actually reaching the right person, which for us is the compliance officer,” he says. “At some point in a small broker-dealer firm’s growth, it will make a change to its data backup and archiving procedures, and that’s when the firm changes from a prospect to a lead. I’ve seen this process occur in as few as three months and sometimes it can take as long as two years.” The typical sales cycle for a lead to become a customer is 90 days.

One other thing that’s interesting about AdvisorVault’s business is that Lonz has never personally met any of his client’s — his entire business is conducted remotely via the phone, email, and/or on the Web. While this remote relationship creates tremendous efficiencies and economies of scale by eliminating the need to traverse the U.S. to meet with prospects and customers face-to-face, it could be a recipe for disaster for some MSPs. The reason it’s not a problem for Lonz’ business is that each of his customers has to sign a D3P agreement, which they have to present to an auditor if they’re ever audited. “The average VAR or MSP doesn’t have the first clue about these rules and regulations, and they’re hesitant to interfere,” he says. “Plus, the broker-dealer firms understand that switching from one D3P to another is a risky move that could not only be a red flag to trigger an audit, but also the firm would have to follow very strict procedures for transferring their data, or they risk losing their business license.”

Help Customers Maintain Data Compliance With Social Media
Now that AdvisorVault has a strong base of customers using its data compliance services, Lonz is working on a new complementary service for his clients. “Many of my clients would like to use Facebook, LinkedIn, and Twitter to attract more customers, but they’re concerned about data compliance issues associated with social media,” he says. “I’m currently beta testing a plug-in that’s capable of backing up social media and can be integrated with my clients’ email archiving. When we roll this out early next year, it will be a simple upgrade that has the potential to generate additional incremental revenue across our entire customer base, plus it could be a catalyst for new prospects to sign up with us.” Not only is AdvisorVault setting itself up for another year of double-digit growth, but it’s also continuing its tradition of building its business on 100 percent recurring revenue that can be sustained with very little overhead and very little personal risk.

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