Lessons Learned On The Path To Triple-Digit Managed Services Growth

By The Business Solutions Network

This VAR had to radically change its business to become a managed services provider (MSP), but another year of triple-digit growth confirms it was the right move.

Giving away remote monitoring services to time and materials customers led to a threefold increase in monthly billing, says BNS founder and CEO Paul Normand, Ph.D.

Photo By Michael Hart

We’ve covered numerous success stories in Business Solutions over the past decade highlighting multiple benefits of selling managed services. Among those benefits are: steady monthly revenue, a less hectic work environment, and higher profit margins than selling project-based and break-fix IT services. If selling managed services really is better, why would more than 60 percent of IT channel companies still prefer the old-school way of selling IT services? Best Networking Services (BNS), an IT solutions provider (ITSP) that started in 2006 and transitioned to selling managed services just two years ago, has answers that many MSPs will relate to — and every VAR needs to hear.

Managed Services Conviction Leads To Business Split In 2010, five years after building up a successful BlackBerry warranty and repair services business that was acquired by another company, BNS founder and CEO Paul Normand, Ph.D. partnered with an employee from an IT company he started in 2000 and sold in 2005 and began ramping up BNS. The two partners started with only a handfull of clients and quadrupled in size within the first year. Normand’s business partner was happy with where things were heading, but Normand felt he wasn’t living up to his business mantra: “Do something no one else is doing.” The fact was that selling and fixing servers and computers was exactly what every other VAR was doing.

To avoid becoming a me-too solutions provider, Normand investigated emerging technologies and became interested in managed services. Shortly afterwards, he signed up with an RMM (remote monitoring and management) provider and began dabbling in managed services. “The problem was that the RMM tool was highly sophisticated, and in hindsight we would have had to hire an internal technician focused exclusively on maintaining it and training other employees how to use it to be successful,” he says. “Despite having 22 years of IT experience, I had no idea how to interpret some of the reports that were generated by the RMM tool.”

While Normand felt BNS just needed better managed services tools, his partner saw things differently. “He was a big believer in sticking with what you know; plus, he was convinced our clients would never want to change from paying for time and materials to paying a monthly managed services fee.”

The business partners’ differences eventually came to a head in late 2012, resulting in a split that left Normand with the company name and a handfull of potential managed services customers and the former partner with the rest.

Lesson #1: You Need The Right Tools To Sell Managed Services
Normand recalls vividly how things were in early 2013, having an RMM tool that was too complicated and barely enough customers to cover the rent. “It was like starting from scratch. I had to sit down, take a few deep breaths, and reel in my emotions. After that, I got focused and asked myself, ‘What can we do better? What can we offer that no one else is?’” One of the first changes Normand made was replacing his legacy in-house RMM tool with an all-in-one hosted solution from LogicNow (formerly GFI MAX). “Unlike the previous product, there was no long-term contract required, and they offered a low-cost, per-device, flat fee, which made the switch even easier,” he says. “Equally important was that the LogicNow solution was considerably easier to use than the previous tool; plus they offered free prepared resources that showed me how to sell managed services and how to get the most out of their product. Plus, they had good support.”

Lesson #2: Sometimes Things Get Worse Before They Get Better
BNS didn’t have immediate success selling managed services, and Normand had to admit that his previous partner was partially right: Some companies simply don’t want to pay for managed services no matter how you present it to them. During the first six months of 2013, BNS lost an additional 10 customers and had to double down its marketing efforts to win new business. “We’re located along the Interstate 10 Energy Corridor in Houston, which has a lot of businesses in a small area,” says Normand. “We identified the ones that would be the best fit for managed services and started heavily marketing to these businesses with calls, site visits, and emails.” During this period, BNS homed in on four types of companies in its area that were the best fit for managed services: investment companies, law firms, manufacturers, and trade companies. “Any one of those businesses can lose thousands of dollars an hour if a server goes down and/or they lose access to their business applications,” he says. “If you have a solution to proactively monitor their networks and applications and can minimize downtime, most of these companies will gladly pay for that peace of mind.”

Lesson #3: Giving Away RMM Is A Win-Win
As Normand continued to learn about managed services and think about what he could do to differentiate his business, a light bulb went off — “Why not give away RMM to every customer?” Admittedly, that was something no one else was doing, but how could he make money giving away a key component of his managed services program? “If properly used, the RMM tool can be your best silent salesperson,” says Normand. “Rather than waiting for your customer to call you with a problem, you’re able to see potential problems [e.g. excessive disk activity, servers running low on memory] and proactively contact them with a proposed solution. Equally important, having each customer connected to your RMM allows you to tighten up your service level agreement [SLA], which we’ve found to be another important differentiator.”

Normand’s hunch was spot on, and BNS saw an immediate threefold monthly revenue spike per time and materials customer after it started offering free RMM. “Customers were paying more money because we found issues that caused degradation in their systems’ performance,” he says. “What’s more, RMM doesn’t only allow you to see more problems that need to be fixed, it allows you fix these problems remotely. In a busy city like Houston, driving kills productivity. Previously, a good day of billing was only 4 hours per tech per day. Now, we regularly bill 8 hours per tech per day.”

Skeptics of this approach may say that if you give away RMM and only charge for time and materials, you’ll compromise your chances of achieving the real benefits of managed services — monthly recurring revenue. But BNS has found that’s simply not the case. “The managed services discussion is about eliminating surprises and reducing downtime,” says Normand. “If you’re a time and materials customer, at some point you’re going to experience a server failure that results in $20,000 in new equipment and labor costs. That cost is in addition to the cost of downtime while waiting for your data to be recovered to the new server. If you’re in a managed services contract, on the other hand, you’re paying me a flat monthly fee to make sure this unexpected surprise never happens. Currently, 75 percent of our customers are on a managed services plan and only 25 percent are on the time and materials with free RMM plan.”

Lesson #4: Learn From Other MSPs’ Networking Mistakes
More than 25 percent of BNS’s managed services sales come from companies that were unhappy with their previous MSP or sometimes from another MSP that is in a bind with a customer and needs help saving the relationship. “We’ve made a name for ourselves by getting called in to clean up really bad problems; we’re like the special forces of IT,” quips Normand. “We had a law firm hire us as an outsourced CIO after it became fed up with its computer and network issues, which were generating 25 IT service tickets a day.” The issue came down to the fact that the other service provider never took the time to properly configure the law firm’s network and ensure everything was working properly before locking the client into a three-year managed services contract. “We helped the firm break the contract without any lawsuits from either party, and within a month we were able to bring their daily tickets down to one per day,” says Normand. “Currently, that client averages less than three tickets per week, which is the way it should be for a managed services customer.”

Lesson #5: A PSA Is Worth Every Penny
Normand believes strongly that IT service providers who try to manually keep track of their billable hours are wasting a lot of money. “Inevitably what happens is that once or twice a day you forget to write down that you spent 20 minutes fixing this problem or 40 minutes helping a customer with that problem,” says Normand. BNS was no exception to this rule, and a simple audit revealed that the company was losing $12,000 in missed billing opportunities per week. “Fortunately, our RMM tool has a PSA [professional services automation] tool called LogicNow Service Desk that automatically records our billable activities,” says Normand. “For example, when someone opens a remote desktop session, it automatically tracks the time. When that person logs out it asks, “What did you do?” then transfers the time and details to our accounting system.”

By staying true to what he felt was a better business opportunity for himself and his customers, Normand is now seeing positive results. “I don’t want to make enough money just to get by,” he says. “Now that we’re profitable and have steady monthly revenue, I can take a vacation every three months. Having that peace of mind personally — and knowing my customers have better peace of mind about their IT systems — has made it all worthwhile.”