Editor’s Note: Ted Warner, President of Connecting Point and Ted Hulsy, VP of Marketing at eFolder chat about Connecting Point’s ever increasing role of providing vCIO business consulting services for clients and the importance of implementing quarterly business reviews.
Ted Hulsy: Well, thanks a lot of joining us. I’m going to ask you in a moment just to tell us a little more about Connecting Point, but it’s great to have you on today’s podcast. You are a long time, loyal eFolder partner and also a member of our partner council, so we always appreciate your engagement and advice you give to our management team, on our partner council. So, why don’t you start out by just telling us a little bit about Connecting Point and how long you guys have been in business and where you focus.
Ted Warner: Great Ted. So, we’re located here in Greeley, Colorado. That’s in northern Colorado about sixty miles north of Denver. We have been in business for over thirty years, since 1985, so that’s a long time. Really have transitioned over the years as one might expect and has really been in the MSP business now for about thirteen years, so we were a very early adopter in the MSP model. As such, we focus on the SMB space, clients with fifteen to seventy-five users, is really our sweet spot, and we cover, really if you look at a map, we cover the front range of Colorado which really starts around Denver, up north, and we also have a sales office in Laramie, Wyoming. So, we cover southern Wyoming as well. So, a big geographic area. We currently have eighteen people on our team, and I guess if I were to add a couple other things, even though we do focus on MSP, we have a pretty robust product sales engine…
Ted Hulsy: Uh huh.
Ted Warner: Which is a little different from MSPs, and we also, because of our heritage, we do quite a bit on the project side of the business also.
Ted Hulsy: Okay, if you were to kind of bucket-ize that or kind of describe that in percentages, what portion of the revenue is projects versus product versus what would be considered kind of managed services?
Ted Warner: I would say from a top line revenue standpoint, it’s about 50% product, about 35% MSP, and 15% project and technical services, but from a gross profit standpoint, that’s completely different. You know, the product business is really a 15% business and the managed service piece of the business is more like a 40%, higher than 40% business, so we make more money gross profit wise on the services side of our business.
Ted Hulsy: Now with that big portion of the revenue coming in in product, I mean, what trends, are there any big trends that you’ve seen? I mean, we hear a lot about margin compression, have things normalized there? Are there any big trends that you’ve been seeing over the past couple of years?
Ted Warner: Yeah, I would say there are some Ted. First of all, I would tell you that our margins have gone up on the product side of the business, which is encouraging, and the only reason they’ve gone up is we just made a conscious decision to raise our prices, and have gotten little or no push back from our clients. We also have two fairly large clients that do about a million dollars of business a year with us, all product, no services, and that’s about a 9-10% business. The rest of our product business is running around 20-21% on the hardware side. What we are seeing is, you read a lot about it, the death of the PC, there’s something to that. We’re not selling as many PCs, endpoints. We are selling a lot more laptops, things like that, but the vast majority of our product business is more infrastructure based.
Ted Hulsy: Okay. And you are on several different peer groups. I know you’re at least in HTG, and I think when I’ve seen some of the percentages of your typical HTG partner that nobody has even close to a 50% revenue mix around product. What are some of the reactions or discussions that come up you know, when you guys look at these numbers quarterly?
Ted Warner: Well, yeah, that’s interesting. Yes, I am in HTG. I’m in HTG 12, and I believe we have the biggest product mix of anybody in our group. It creates some issues for a managed service provider because it does tend to skew your bottom line net number because, I mean, if we do four million dollars’ worth of product sales, and we do three million dollars’ worth of services, and it just kind of skews your bottom line number compared to other MSPs. So, you know, I do my best to kind of normalize that in my group, but it makes the math a little bit harder, but we have felt that we’re not going out trying to sell product to brand new customers who don’t engage with us in a managed service agreement. Outside of the two large clients we have, all the product business that we’re selling, almost all the product business we’re selling, is to our managed clients.
Ted Hulsy: Right, so they’re turning to you for really an end-to-end experience where it’s not just the kind of project based consulting that might be needed, but the ongoing managed services plus when they need an infrastructure upgrade or a refresh or they need new endpoints because they are growing just as an organization, they are going to turn to you because either you’re their go to place and they trust you.
Ted Warner: Yeah. I’d add two things to that. Number one, it’s very, very important. We have a very disciplined VCIO practice. We call it business consulting, and we tell everyone of our clients that we want all of their business, and we work really hard on that on our technology road mapping to make sure that our clients know that we want their hardware business, and we also, I have my own leasing company, and so we’re doing a decent amount of hardware as a service as an alternative to capital purchases a product where our clients are renting hardware from us, including your BDRs. We don’t sell the BDRs. We rent them, and it’s a hardware as a service model, which has made it…when you asked me about trends, that is a trend that I’m seeing in the industry, and I say all the time that we purchase things that appreciate like real estate and diamonds and you rent or lease things that depreciate like cars and technology, and so that’s been a really good model for us. It gives us a unique differentiator in the market.
Ted Hulsy: That’s great, and then let’s kind of take…you said that you guys have been doing the managed services approach. I mean, you got started thirteen years ago. Talk a little about what was hard about that transition originally and what advice would you give to some MSPs that maybe, or you know, IT service providers that might have more of a break/fix model today. I mean, how should people make that transition or what are some of the challenges to look out for?
Ted Warner: Wow, great question. Well, when we did it back in the early 2000s, we just did it. There weren’t…managed services really wasn’t very popular, and I just made a decision for our company that we were going to get out of the reactive service break/fix type mode and go to a more fixed fee, proactive model. So we started holding regularly, two to three times a month, we’d have lunch and learns to kind of educate our clients and potential clients about what we were going to do, and as I look back at it now, you know, the tools weren’t very good. Today, the tools are excellent, and I guess I would just encourage people who are thinking about it, to make a definitive business decision. I don’t think that you can be half in with managed services. Either you’re a managed service provider or you’re more reactionary kind of materials company, and so, that isn’t an easy transition, and I had people tell me, you know, that the sales people that we had and a lot of the technical people we had would not be able to make the transition. I kind of squawked at that, but in reality, that’s kind of what happened. So, I guess A.) I would be prepared. 1.) I would do the…make the transition. 2.) I would get help. Get into a group like an HTG or a true methods or whatever where you can get some good coaching and 3.) Be prepared that the resources that you have on your team today, not all of them will make the transition with you.
Ted Hulsy: And tell me a little bit about that. What is…why does that happen? Do people just get set in their ways and they don’t like change and sometimes that means they have to, you know, go find a different place to contribute? How does that play out?
Ted Warner: Yeah, I think that’s part of it Ted. People don’t particularly like change, but the managed service business is a very disciplined approach. On site, you’re going to do a basic structure when you go on site, when you do your proactive work, when you do your check lists, when you do your business consulting VCIO meetings. It’s very disciplined. Whereas, by definition, if you’re more block time or reactive service, it’s more dependent on the engineer, and every engineer has their own way of doing things. That’s one of the areas where we got in trouble. We weren’t any better than our engineer that was in the field. So, if you had a fantastic engineer, the client got a great experience. If you had a more average engineer, the client had a more average experience. Whereas today, we feel like our engineering pieces on the managed service side are more plug and play. Yes, personality is involved, but the structure that’s in place, allows us to be much more consistent in our service delivery to our clients, and they like that.
Ted Hulsy: Tell me a little about how you would price and package your managed service offering to these clients.
Ted Warner: So that’s a good question too. When we started, we were very al a carte. We had network monitoring and PACS management, email management, managed antivirus, managed back up, all that good stuff, and we basically store everything al a carte, and we realized over time, that unless we controlled the entire environment for our client, that we weren’t being as proactive as the clients needed. The clients didn’t even know what they wanted, but we felt over time, that we needed to move to an all-you-can-eat model, which is what we have today…
Ted Hulsy: Uh huh.
Ted Warner: And that we wanted to do everything for them from A to Z, and so, today, we really have one package, whether it’s their infrastructure is on Prim or their infrastructure is in the cloud or a hybrid model, we have one support model where we do everything and it’s for a fixed fee. We don’t sell things al a carte.
Ted Hulsy: Now, I guess when you come in and do kind of he VCIO engagement type process, could you talk about that methodology and then how do you deal with the unique circumstances that some clients might have, and where does that, you know, show itself? I mean, if you have a standard bundle of all-you-can-eat offer, presumably once in a while, there must be some things you customize for clients and how does that pop up?
Ted Warner: So, that’s really like two questions. The first question you asked was on the VCIO engagement. We meet with our clients on a, almost every one of our clients, on a quarterly basis. If they are a little smaller, we’ll meet with them three times a year. We have a specific agenda. It basically, just to walk you through it, we spend the first part of the meeting…by the way, the meetings are an hour and a half, they usually go two hours, but we schedule them for an hour and a half…
Ted Hulsy: Uh huh.
Ted Warner: We ask the clients, ‘Tell us about where your business is going for the next six to eighteen months’, get them talking about what they are doing, you know. No business is static. They always say, ‘We’re going to open up a new office…we’re bringing in a new product…we’re adding some employees…”, whatever it might be, every one of those things is dripping with technology and support issues. Next, we go over our technology report which shows them everything we have done for them, and then we spend a lot of time on the written technology roadmap. We have a three-year roadmap that we work on together with the client, and we tell our clients that they should never spend a penny with us that isn’t budgeted, and that, you know, there’s always emergencies that come up, but if we’re going to be bringing them to the cloud, or we’re going to be replacing their server or replacing their switching, that all is laid out on a quarter by quarter basis and you know, so they have time to budget for that.
The second part of your question was, ‘Do we customize our offering?’ And the answer is we really don’t. Every business has line of business software…
Ted Hulsy: Uh huh.
Ted Warner: Of course, we don’t support that. We require the client to have a support agreement with their software provider. We act as kind of a go between. We do vendor management, so we will be talking with, let’s say it’s a manufacturing firm, and they’ve got a, you know they have a piece of software that controls their manufacturing. We don’t anything about that. However, we will help them with software upgrades on behalf of the software provider. We will run interference for them. You know, if there are questions, but all of our managed clients really receive the same kind of support and get the same tool set that we deploy in the environment. Additionally, every one of clients gets a net admin, who is the onsite technical resource for that account. So there’s really two people who are in charge of the account. From a technical standpoint, it’s the net admin and then from the relationship and a planning and consulting standpoint, it’s the business consultant.
Ted Hulsy: Gotcha, and I guess over, kind of back to the VCIO engagement, it sounds like you guys have refined that quite a bit and have a very process driven approach there. I’ve been kind of shocked to hear, I mean, sometimes some MSPs call these QVRs, and I’m actually quite surprised how often clients push back that they don’t necessarily want the quarterly engagement of the quarterly QVR. Is that something that you guys experienced? Or is it just part of being disciplined, insisting on it happening? I’m just kind of curious there because I’m often finding I’m trying to coach partners into how to get over that particular hurdle.
Ted Warner: Great question. Here would be my answer and we’d experienced that in the past. My easy answer would be you’re not bringing value if the clients are pushing back. If you’re truly a consultant, and I would encourage everybody to listening to this to go look up the definition of consultant in the dictionary. You are bringing value and consultant got the client, even by the definition of VCIO, means you’re on the client’s payroll as a Chief Executive Information Officer, and so, we were getting push back when we were just bringing a bunch of reports and really were coming at it from a more of a technological standpoint. When we come at it from a business consulting standpoint, we find the clients definitely want to talk to us. They are looking forward to it, and by the way, the meetings go longer than the hour and a half that we scheduled, and I know that, because over the last period of time, I’ve started being at one of our business consultants. I have four accounts that I personally handle and these meetings are incredible, and it goes back to the point that no business that we’re dealing with is standing still. They all are trying to move their business up and to the right and anytime you do that, there’s technology that needs to be brought to the forefront, that needs to enable them to meet their business initiatives, and that’s what our job is. It has nothing to do, from my perspective about technology, it has everything to do with aligning with what the client is trying to get accomplished. You know, Zig Ziglar said, “If you enable enough people to reach their goals, they will help you reach your goals”, and that’s kind of what we’re trying to do.
Ted Hulsy: Yeah, I think that’s again a huge part of this, is kind of turning it around and starting with the business conversation and really understanding the business challenges. I think a lot of MSPs kind of tackle this sort of engagement from a far too technical perspective and they come in with all the technical gobbledygook, and not turning it around and actually trying to understand first what the client is trying to do in their business before, you know, diving into the potential technical solutions. So it’s kind of, I just read Covey’s ‘Seven Habits of Highly Effective People’ and one of its premises of the book is seek first to understand before you try to make others understand you, and I think that definitely plays a part in consulting engagements and QVRs and the like.
Ted Warner: Absolutely. I would just add to that, Ted, if you…unless you’re really a small MSP, you know less than ten people in your company, it’s a big commitment, and we think it’s a huge differentiator for us. It’s a big commitment, but it’s a dedicated role in our company, so our business consultants/VCIOs don’t do anything else. They just work with our clients and you know, provide the business consulting. If you try and take an engineer or a sales person and say, okay, you’re also going to be the business consultant, the clients see right through that, and they feel like, well, this guy is just coming in to talk to me about technical stuff or this guy is just trying to sell me something, and you lose the value. If you’re truly providing consulting, that’s a whole different animal.
Ted Hulsy: What’s the skill set of that person look like or career background because I think that’s a struggle I think we all have in, you know, training and developing people inside an organization is how do you turn them into business consultants? I mean, somebody you can really have a business conversation with, a C level executive at the client. What do those folks look like and what kind of career development or talent development have you had to do there?
Ted Warner: You just said it. They can have a business conversation with the C level executive. Period. So, you know, interestingly, I’m not an engineer. I’m not even very technical, and I don’t mean to sound arrogant, but I actually think I’m a really good business consultant because I understand business. So, when I talk to the CEO of a company or the President of a company, and he starts telling me, he/she starts telling me what they’re trying to accomplish in their business, most of my questions are probing deeper and deeper why they are doing it, what’s the impact to their business? I take notes on what they are trying to do. I never make any real recommendations on the front end. I’m basically just gathering information and then I can get together with my technical people, share what they are trying to do, and then we can put together stuff for the roadmap. So, the answer to your question is I would find somebody who it doesn’t matter if they have a sales background or technical background, but if they understand business and can communicate concepts to business people, that’s the kind of person you need. So, the neat thing about MSPs is they are, we are generally not huge businesses, so the business owner is very, is probably the best candidate on your team to be the business consultant or somebody who is on the management team who has a good handle on business. So, if you go out into the marketplace, and were going to hire somebody, I would look for somebody who maybe owned their own business, really has more of a, well I tell you what, I’m thinking about my next business consultant…I’ve already identified that person, and they are a CPA, so they understand, you know, kind of the ins and outs of business. Now, they are a younger person, so they also have some technical…you have to have a little bit of technical knowledge, but you don’t have to be an engineer.
Ted Hulsy: Right.
Ted Warner: I’ve answered the question.
Ted Hulsy: Right, I guess, and I…but I think this is an area where I think a lot of MSP business owners because many, many of them actually come from more of the technical side. They have trouble, I mean I think they kind of underestimate this kind of skill set, and anyway, it’s just kind of tricky. It’s how do you hire…you know, it would great if somebody could put together maybe a playbook on the type of person you need to hire into this role because I see, I don’t know…I see too many MSPs having challenges with scaling their organization because they don’t have anybody like this who they can delegate these very important client engagements to, and they don’t really know, they don’t really know the right questions to ask or how to identify what that person looks like. So it’s just another area where there’s quite a bit of development needed for a lot of our partners.
Ted Warner: Yeah, I would say, you know, not to be too disciplined or too structured on this. If you have…we have these…if you have smaller clients who maybe it’s a single server environment or whatever, and they’re a fairly, you know, easy client, you can utilize an engineer type or well, I’ll just leave it at that, but if you, for your larger, more important clients, where you know are charging them three thousand, four thousand, five thousand a month or more, those clients deserve a higher level of business consulting. To be honest with you, I think that as you see the commoditization of managed service providers, we firmly believe our process in delivering our services and our business consulting is what separates us from our competitors. I mean, we all have the tools, right? We all use…
Ted Hulsy: Right.
Ted Warner: eFolder and can do back up and can do this, that, and the other thing, but it’s the business consulting that really becomes sticky with the client and we want to be hooked arm and arm with the client and that’s why we do it on a regular basis. So, yeah, I think that as we move forward, it’s going to be something the clients are going to be demanding more and more because the environment is not getting easier. It’s getting more complex and as small and medium businesses are moving to the cloud or contemplating moving to the cloud, they need somebody who can help them navigate that, and that’s another area where business consulting is really important. I was at a bank last week and, you know, we had a great discussion about security, about moving to the cloud, and I told them, I said—I won’t go through the whole conversation, but I basically said—you know, this is going to take a year of planning on our part together, to make sure that we do this smoothly, and you know, the President of the bank was 100% in sync, really got very excited about the opportunities for them. So, now in our next quarterly meeting, you know, the one after that and the one after that, we’ll be doing this planning, so we have a very structured and organized way for them to make their move to the cloud, which is what they want to do.
Ted Hulsy: It’s great. So I guess just a couple final questions. So when you’re thinking about growth, how do you plan for growth? I mean, how are you guys thinking about, you know, the next twelve months or the next twenty-four to thirty-six months. How do you guys go about planning and coming up with your own growth plan and goal for the next year?
Ted Warner: Well, fortunately, we’re pretty disciplined in the way that we grow our business and we have metrics that say, you know, we need a business consultant for every X number of clients or X amount of MRR and same thing for our help desk and for our net admins, and so really, it’s a function of sales. Everything starts when you sell something and so, if we can bring on, you know, two new clients per month—our average MRR by the way is about $2850 a month, that’s our average—so if we bring on one and a half to two new clients a month, yeah, I can tell you, we need for every eighty to one hundred thousand dollars of MRR, we need a business consultant.
Ted Hulsy: Uh huh.
Ted Warner: For our net admins, what’s the number. Forty thousand dollars. They can handle about forty thousand dollars of MRR or about fifteen clients, and so, we have metrics. So that’s kind of how we plan our growth, and I kind of like that. You know, in the old days when we were more product and reactive service, we didn’t…it was a little bit like a circus. We would just take whatever we could get and some months were really good and some months weren’t so good. This way, it’s much more of a disciplined growth path than what we’ve had in the past. It allows us to be much more structured in the way that we grow our business. Same thing on the project side, you know, we figure that we’re going to get about 20% of the annual MRR spin in project business. So if the client paying us $4000 a month or $48000 a year, we’re going to get about a 20%–$9600 worth of projects from that business and so, there’s formulas there for how many project people you need. So we tend…we’ve become pretty siloed. We don’t have very many roles at all here at Connecting Point. There are mixed roles. They’re all pretty dedicated roles. You’re either on the project team or you’re at the help desk or you’re a net admin or you’re a business consultant. We really have only one person, maybe one and a half, that do, you know, reactive technical service.
Ted Hulsy: Uh huh. And the whole thing just is much more predictable, it’s predictable in terms of, you know, the additional up sales and projects you’re going to get. It’s predictable in terms of your cost because that’s well understood and you know much, you know, cost you’re going to have for a certain amount of client MRR or load. So the whole thing just becomes a much more predictable outcome for the business.
Ted Warner: Yeah, the only thing that’s unpredictable of course, is you know, can you bring in the new MRR. I mean, that’s the whole game.
Ted Hulsy: Uh huh.
Ted Warner: Like your costs are predictable and everything else is pretty much push button. I don’t mean to minimize it. It’s hard, but it is, it’s a lot more structured than what we did before and therefore, you know, an MSP should have a higher net bottom line than maybe a product reseller or a project and product company, and if you listen to the Paul Dippells of the world, your evaluation should be a little bit higher because you can charge a, you can get a little more margin on what you do.
Ted Hulsy: Yep. That’s right and I think the…we probably have a whole other thirty-minute podcast just to talk about selling and marketing at some point, but I think that with that final concluding idea of it’s about driving value for your business. This was very informative.
Ted Warner: Well thanks Ted. I appreciate you inviting me and you know, this is not a paid commercial, but you folks, you know, we’re very involved with eFolder. We utilize a lot of your different products that are in our product set, and have been very helpful for us, so thanks for all you guys do for us.
Ted Hulsy: Well, we appreciate your partnership as well. So thanks a lot for chatting with me, Ted. Have a great day.
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