Find Your Cloud Services Niche
By Jay McCall
This MSP’s client communication skills and intentional focus on cloud services are important keys to its projected 25 percent revenue growth this year.
The official name of the IT service company Jason Etheridge started in 2004 is Logic Speak. But, make no mistake, this is not the same company it was 10 years ago — or even two years ago. To differentiate the before and after periods, the MSP often refers to his updated business as Logic Speak 2.0. One area where this transition can be seen is the MSP’s bottom line. Following several years of flat revenue, Logic Sp eak experienced 15 percent revenue growth in 2013 over the previous year, and this year it’s on track to achieve 25 percent revenue growth over last year. Small and large IT service providers alike can learn a thing or two from this company’s experience.
Stop Running A Reactionary IT Service Practice
The year 2012 marked several turning points for Etheridge. Leading up to this period, he was introduced to The eMyth Revisited: Why Most Small Businesses Don’t Work and What to Do About It by Michael Gerber. Among the challenges to small business owners, the author advises business owners to be intentional about running their businesses, including determining how much profit they want to make. “Most small business owners do what I used to do, which was to start with a revenue goal, then subtract employee expenses and other costs, and end with your profit margin,” says Etheridge. “The eMyth flips this model on its head, challenging business owners to first decide how much profit they want to make and intentionally building a business model — including services, employee compensation, and all other costs — on top of that. This approach ends with a plan to accomplish the profit objectives set at the beginning.”
One of the first “intentional” changes Etheridge made to his company was retooling Logic Speak’s mission statement, something he says used to be long, overly wordy and formal, and above all else — inaccurate. “We originally created a mission statement because we had to put something on our website, not because we believed it,” he says. “Our mission statement now is: ‘To use our abilities and technology to have a positive impact on the lives of our clients and our employees.’ If we are doing that, we are succeeding. If not, we figure out why and change what we’re doing.”
Logic Speak’s new mission statement doesn’t say anything about shareholder value or profits. “If we accomplish our mission, I believe the rest takes care of itself,” he says. “That simplifying statement is hands down the biggest — and best — business decision I have ever made.”
Build A Win-Win Recurring Revenue Offering
Another area the MSP improved over the past couple of years was its managed services program. Although it had been selling managed services since 2006, Etheridge recalls the early struggles trying to determine the right price. “Initially, we charged too high of a rate to account for potential server crashes that would require several labor hours to fix,” he says. “We’ve learned that it’s better to sell prepaid bundled hours at a discounted rate. For example, depending on the size of the customer, we may sell them a monthly bundle of 5, 10, or 20 labor hours.” Where the MSP fine-tuned this process in recent years was how it handled customers going over or under their allotted labor hours. “We now allow customers to roll over unused hours to the following month, similar to how many cell phone plans work,” he says. “And, if a customer uses more than its allotted hours in a month, we allow them to borrow from the next month and we reconcile the difference during our quarterly business review [QBR]. This is also a good opportunity to discuss whether the customer should purchase a higher labor support package.”
Cloud backup is another unpredictable service that makes it difficult for MSPs to charge a flat monthly fee. Logic Speak has learned over the years that conducting a backup audit at the beginning of a managed services relationship can go a long way in making a more accurate prediction of the customer’s growth. “We’ll review and categorize their data into categories ranging from mission-critical data that’s backed up every night to the cloud, to archived data that’s backed up quarterly to an external drive,” he says. Similar to its prepaid labor bundles, the MSP keeps customers informed weekly of their data storage costs and makes adjustments accordingly during its QBRs.
After figuring out the secret to selling managed services, Logic Speak saw its customer approval ratings and revenue soar, and it’s consistently held a 95 percent-plus customer satisfaction rating for more than two years. Etheridge says the key to making it all work is constant communication. “In addition to QBRs, we send our customers weekly reports detailing our support activities, plus we conduct a customer feedback survey after each completed service,” he says. “We’ve found that customers are fine paying overage fees as long as they understand why and they aren’t caught unaware at the end of the month or quarter.” Presently, managed services comprise 75 percent of Logic Speak’s revenue.
Become An SMB Cloud Services Expert
The MSP also has seen an uptick in cloud services revenue over the past couple of years, and according to Etheridge, cloud services comprise more than a third (35 percent) of his company’s managed services revenue. Etheridge says there are a couple of keys to success when it comes to selling cloud services and the first is to recognize where you can’t compete. “We will never compete at providing cloud services directly,” he says. “Microsoft, Amazon, VMware, and the other big guys would kill us on economies of scale. Instead, we can make money by being the cloud services expert for small businesses.”
The fact is that the list of cloud service providers and offerings is exhausting, and it’s difficult and confusing for small business owners to know which companies and offers are right for their businesses. “We can help by understanding their business needs and recommending the appropriate cloud solutions and services,” he says.
Etheridge believes strongly that selling cloud services requires a good deal of dialogue and education prior to making the sale. “Customers are fearful about where their data is being stored and who can potentially hack into it,” he says. “That’s why we work with vendors like GFI MAX [see sidebar] that use the same security that’s used by banks for their online customers.” In order to get to the bottom of customers’ cloud fears and misconceptions, Logic Speak’s office manager schedules lunch appointments with clients and asks open-ended questions to gauge their interest in, and knowledge of, the cloud. “Once business owners realize they can go from a large up-front capital purchase model to a plan where they pay for only what they need each month, most get that equation pretty quickly,” he says.
Which Cloud Services Should You Sell First?
Another stumbling block for some VARs and MSPs looking to sell cloud services is determining where to begin. “Cloud backup is the most logical starting point for selling cloud services,” says Etheridge. “Every customer needs it and IT service providers can not only recommend the right solution, but they can add value by bundling monitoring and data recovery services with their cloud backup solution.”
One other tip Etheridge offers aspiring cloud service providers is to try it before you sell it. “Almost all vendors have a ‘freemium’ version of their services along with a mobile app that will allow you to get your feet wet,” he says. “Only after you’re familiar with the major players and technologies can you start to make decisions around which services you want to offer.” And don’t think that choosing a particular cloud service means you’re locked into a permanent contract. “Don’t be afraid to change vendors if it benefits your bottom line significantly, or if there is a significant leap in features and functionality,” he says. “One of the best decisions we made was changing to our current BDR vendor, which enabled us to double our profit margins on cloud backups.” On the flip side, there is a downside to switching vendors too often, and Etheridge says that the more research, testing, and evaluating you do up front, the longer and more successful your vendor relationships will be. “Once we select a vendor, we won’t even consider changing for at least a year, and even then, we need a very compelling reason to do so,” he says.
“Cloud backup is the most logical starting point for selling cloud services.”
Jason Etheridge, president and CEO, Logic Speak
Prepare Now For The Managed Services To Cloud Services Transition
Etheridge predicts that within the SMB market, every company will use some form of cloud services within the next five years. “And within the next 10 years, I predict that most small businesses will have almost all of their technology needs filled by cloud services,” he says. As a result of this belief, Logic Speak is focusing its efforts on staying ahead of the cloud adoption curve. “We will always have a managed IT services business, but the makeup of our revenue in the next five to 10 years will change dramatically,” he says. “As more and more businesses make the move to cloud services, fewer dollars will be spent on traditional IT services [e.g., setting up new servers, updating Exchange Server software].”
To be clear, Etheridge is not suggesting small businesses will no longer need IT service providers. “As long as there are small businesses and those small businesses use and depend on technology in any form, there will be a need for companies like ours,” he says. “But, those needs will change. Clients will need trusted partners to help them navigate the cloud, and in a lot of cases, will trust those partners to provide cloud services. We are continuing to expand our cloud services offerings by evaluating, testing, and recommending cloud-based solutions for the various business needs of our clients. For instance, in the coming months, in addition to selling hosted Exchange, cloud-based antispam, and email archival, we’ll be adding secure and encrypted email to our suite of cloud products. There will always be some unknowns when it comes to making decisions and trying to stay ahead of the learning curve. We pride ourselves in making educated decisions, and we’ve become comfortable with the fact that we have to always be ready to change.”