Editor’s Note: “Running a small business is like living alone on an island — you can’t talk to your employees and you can’t talk to your clients,” says Arlin Sorensen, CEO of HTG. Sorenson created a leading IT Channel peer group to help MSP business owners combat those roadblocks. During this episode, he shares how HTG aims to help MSPs benchmark their success, keep themselves accountable, and set goals every quarter to move their businesses forward.
Ted Hulsy: Arlin, welcome!
Arlin Sorensen: Thanks Ted. Glad to be with you.
Ted Hulsy: Okay. Well great. So, what we always start out with is we ask our special guest to tell us a little bit about their organization. You’re involved with a whole number of different organizations, but I think we kind of want to zero in today on HTG, and so tell us a little bit about HTG, what your mission is, and how you came to found the organization.
Arlin Sorensen: Great. Well it’s good to be with you. HTG was founded back in 2000. At the time, I was running an IT company which became known as HTS or Heartland Technology Solutions. We were geared up for Y2K and all the exciting opportunities that were promised to come with that turn of the century. And by April of that year we were struggling. I didn’t have near enough work for the staff that we had built and the promise that we were given of all this great and wonderful opportunity. So, one of my employees suggested we get together with a few other dealers in Iowa and just compare notes on what Y2K was all about. And we did that. We met with three other companies in Des Moines and spent a day together, and learned that Y2K completely missed the state of Iowa and that was great information. It helped us make some of the hard decisions we needed to make to right size our staff and not allow it to take us any deeper into a crater. So, we learned a lot that day. We decided to continue to meet together coming out of that to just share notes and learn from each other. And that was the foundation and the roots from which HTG came. We never intended for HTG to become the organization it is today. It was something we did for primarily our own benefit along with those that we were meeting with, and over the course of the next five years we grew to 12 companies that were part of it. And that was what we really intended to have was one group with a dozen companies, and by the end of 2005 people were coming up to me at trade shows and events and asking if they could join our peer groups. You know I said that was all we were planning to do. But I would take their names on a waiting list. By the spring of 2006 we had over a dozen companies on the wait list. So, we decided to see if there was another group that was willing to commit, and we started our second group, and then our third group. In 2007 we went from three groups to ten groups, and we were off to the races. So today we serve over 500 companies across over 35 different groups, and we’re having a lot of fun working with companies, helping them to achieve their growth goals. Our goal is to walk beside them, help them succeed according to their plans, and we put together a framework of tools and a methodology along with facilitation to enable them to do that. You know we’re successful when we help them to be successful.
Ted Hulsy: Great introduction to what HTG’s doing today. Most of the companies in HTG are kind of what you would call managed service providers or IT service providers. But I think, to me, it’s kind of interesting what you’ve discovered is that the power of peers kind of transcends. It’s not just something for MSPs you know. It’s something for vendors. It’s something for service leaders inside of an IT services company. Can you talk a little bit about kind of the different types of people who are involved in being on a peer group?
Arlin Sorensen: Yeah. Inside of the HTG platform we currently today serve IT company owners, primarily managed services focused, but we do it in a couple of ways. We have our face to face program where companies with 10 or more employees participate, and they meet together two days a quarter face to face four times a year. We also have a version for smaller companies that meets online for 90 minutes a month. Same kind of framework. We put them together in groups of 10 to 12 and facilitate their time. But based on their size, we’re serving different markets. We have groups today for service executives so the folks that actually lead the service delivery within a company. We’ve got 10 of those groups now that are meeting and they’re focused more on the tactical side of service delivery. Whereas the owners are focused on business growth and sharing business practices. And then we also have a couple of groups for vendors that serve this community. So, there’s a number of ways that we’re engaging. We’re looking to bring out sales executive groups in 2017, and we’ve talked about being able to serve other roles like HR, marketing, and finance in the future as well. Peer groups work for not only any kind of IT interaction, but we’re actually part of a peer group of peer group operators that serve people in the dental community, home remodelers, CPAs, eye doctors. These interactions will work in a number of different environments. All it takes is a group of committed people and a little framework and facilitation and you can learn an awful lot just by listening.
Ted Hulsy: But it has been… It’s kind of interesting also though that running a small business or a growing business can be a pretty you know lonely endeavor, and there’s a lot of challenges around just accountability and insight into what’s happening in the market. Can you talk about how you know what are some of the experiences people, like business owners, specifically have when they join HTG in terms of how their eyes get opened?
Arlin Sorensen: Yeah. I mean running a small business is a lot like living on an island where you’re the only person. You typically can’t really talk with your employees about challenges you’re facing, and you certainly can’t talk to your customers about it. So, you’re kind of out there by yourself trying to figure it out. One of the first things that people get awakened to is the understanding of what good looks like. One of the things that’s part of our program is that we benchmark all of the companies that are part of HTG in partnership with Service Leadership using their very detailed benchmarking tool set. And so, when you join HTG and submit your first quarterly financial data, you get a report book that’s about 75 to 80 pages thick. But it shows you how you compare to the other 10 or so companies in your group. And you see the detail on 325 line items of how you compare with a group of other folks that are on the same journey. That usually is the first eye opening experience is that people who thought they were doing really well find out they might be doing well in a few areas, but there’s a lot of areas that they can improve. So, benchmarking is definitely one of those things. The sharing that happens in the group meetings where you’re able to come and bring the challenges you face. For a lot of owners this is the first time they’ve really been in an environment surrounded by other people that have either already faced that challenge or are facing it right now. And they have a chance to bounce ideas off of people to learn what has worked in other environments, and to go home with you know a handful of different ideas that they can take and apply to their own business. So, it really brings you off the island and helps you to get connected with folks that are on the same path you are, and you can learn a lot from their experiences and hopefully prevent having to make all the same mistakes that they may have already made.
Ted Hulsy: Now sometimes you know so being on a group you’re going to get a lot of great insights, you’re going to learn, you’re going to be able to benchmark, you’re going to know what good looks like, but talk a little bit about, if you would, how accountability works in the group and why that’s so important.
Arlin Sorensen: So accountability is probably the Achilles heel of most small business owners. Most of us run our companies because we want to be our own boss. That is a fantastic thing to be able to do. There’s one major problem with being your own boss. That is that we do the things we want to do rather than the things that we should do or need to do. What happens in a peer group environment is you have a group of people that number one are able to see through all the smoke that we tend to blow at each other, and they can cut through that and get right to the crux of the matter, which is that without execution it’s just a bunch of hot air. And so the peer groups do provide a level of accountability. First of all around business planning and life legacy and leadership planning, we ask each of our members to write those four plans and to share them with the groups so the group has a clear understanding of what it is they’re trying to accomplish with the big picture. Each quarter they set goals that they’re held accountable to achieve before the next meeting. So, they have 90 day to accomplish those goals, and they have to defend those when they start the next meeting. So, there’s a number of things we’re doing that we’re trying to drive accountability. One of the quotes that we often talk about is Thomas Edison’s quote, “Vision without execution is hallucination.” A lot of small business owners hallucinate quite a bit. They do a lot of talking, and not as much executing as they need to, to really be successful. And so, we’re focused on driving that behavior. We try very much to make that happen. And to carry our island theme a little further, HTG groups are basically run on the survivor model which means that if you don’t perform within your group, the group can vote you off the island. And one of the major ways that that happens is when people fail to execute their goals and their plans. People want to hang out with folks that are actually getting stuff done and making progress and growth. And so, in the event that people in a group come back quarter after quarter and haven’t accomplished the things they’ve set out to do, unless they’ve got some really good reasons for that, it’s likely that they’ll be voted out of the group in short order.
Ted Hulsy: So it’s tough love, I mean, but presumably rather if people ever run into that kind of situation they are able to turn it around? I mean without naming names can you think of some success stories where people kind of came up hard against the accountability expectations and were able to kind of reform things. Get things back on track?
Arlin Sorensen: Absolutely. I mean that’s the objective obviously is we’re not setting out to vote people off the island, but to help them succeed. So, you know when there are situations where people are struggling with accountability, the group will often do a number of different things to help. You know they have to identify what the barriers are and in some cases they will (a subset of the group) may go visit that particular office and provide some feedback on ways that they can become more accountable and execute more effectively. If they’re struggling with particular areas of their business, within every group there’s typically somebody that’s you know more financially knowledgeable. Has better sales background. Any number of expertises, and they’ll get pared up with somebody that’s struggling to accomplish a goal. People you know we just had a member in one of my groups that was struggling with some budgeting and finance planning. So, a couple of folks ended up going out and spending a couple days with them helping them walk through that process and make it something that would fit their organization. So people get voted off the island when they fail to really try to execute, and they don’t raise their hand and ask for help. That’s really what we’re trying to accomplish with HTG. We know that everybody is going to at some time fail. But when you’re falling short, number one you’ve got to communicate that. So, everybody understands that you’re going to come into the meeting missing something that they’re expecting you to have done. But secondly, asking for help, so that they can walk with you and help you accomplish that. If we can help everybody accomplish two or three goals a quarter, we can move their business forward in a significant way. And that’s really the secret of what we do. Take steps every quarter to move the business forward and that’s what allowed us to help companies grow and achieve success.
Ted Hulsy: Another thing that I think you guys are doing in HTG to maybe to transition here a little bit is bringing together vendors and partners in an environment where they can kind of learn to collaborate more together. Can you talk about the importance of vendors to IT channel companies?
Arlin Sorensen: Absolutely. This is an area I’m passionate about. You know I ran my IT company for 27 years, and without a doubt you know when people ask me what is the key differentiator that you’ve seen over your career in terms of setting companies apart (those that do okay from those that have the hockey stick kind of exponential growth)? From my perspective without a doubt, it is the ability to learn to work effectively and partner with vendors and distribution. Those are the companies that really take off and explode. And the reason that happens is that they learn how to leverage resources without having to build them all themselves. One of the things that our industry is full of is investment by vendors in all types of resources that are available to partners if they will only reach out and cooperate and work together. And so, we are focused in HTG at trying to break down the walls that seem to exist at times. At times there’s almost a confrontational relationship between managed service providers and their vendors and we believe that has to be taken 180 degrees to the point where there’s actual planning going on between the vendor and the MSP, there are commitments being made to one another, and there’s joint work being done together to serve clients. We have the same objective and that’s to take care of our customers and provide them excellent service over time. So, it only makes sense that we learn to work closely together to plan together and to leverage all the resources that are available to serve those folks as best we can.
Ted Hulsy: Now you had a lot of experience doing this very well at HTS when you ran your own IT services company. Talk a little bit about what you did from a planning perspective and how you kind of you know picked your lead horses and that sort of thing.
Arlin Sorensen: Yeah. The experience that I had running HTS where we grew to a company that did almost 19 million dollars in revenue and had seven offices across five states with a little over a 100 employees, we learned how to effectively collaborate with our key vendor partners. First and foremost, we got the understanding that price is not really the measuring stick by which we can create effective vendor relationships. We consolidated, we selected the vendors that we were going to go deep with, and consolidated our purchasing to those particular vendors. We had five that were key vendors and one key distributor that we worked with. And basically inside of our organization, if it was not being purchased from one of those five vendors through that distributor, you had to get management sign off to be able to make that purchase. We were very, very disciplined in our approach, because we wanted to have a win/win relationship with those particular companies. We planned together annually and did quarterly reviews on how we were doing with those plans, but we did it a little bit different in that we asked those five companies to meet together in the same room over a two-day period where we did our strategic planning for the upcoming year. And we asked each of those vendors to make commitments and to receive our commitments of how we were going to do business together in the next year. So, that included market development funds, it included sales resources, it included training and certifications that we were going to step up and do, along with their assistance. Obviously, some financial targets and some of the goals that we were setting together to achieve growth. But when we left that meeting, typically in the fall of the year, we had a clear plan and each of our vendor partners knew exactly what to expect from us, we knew what to expect from them, and that allowed us to really work well together. We grew significantly as a result of that because we were able to leverage their resources they already had in play along with our resources to be more effective together. And so, I’m a big, big proponent of joint planning between vendors and managed service providers. Yes, it takes some work. Yes, it takes commitment. It mostly takes execution and follow through. The biggest complaint I hear from vendors about working with partners is they don’t execute. A lot of partners stand there with their hand out asking for funding, but they don’t want to report on what they do with it, they don’t want to share a pipeline on what the effectiveness was, and then they wonder why next time that people aren’t writing them a check. It’s a two-way street and we have to work it together. We got to sit on the same side of the table, be focused on the same exact goals, and work collaboratively together to achieve those things. And as you have success, then the checkbook opens wider and wider. And that’s because there’s an ROI for the vendor to make those investments and there’s an ROI for the partner to spend the time and effort to plan together. So, it can be a significant impact on businesses. And like I said earlier, it is the differentiator I see between those that have growth and those that truly have exponential growth.
Ted Hulsy: So all of those learnings that you gleamed from your HTS experience and you’ve seen kind of continue for the people who aren’t doing this kind of planning; you know people are continuing to struggle in this area, where would you kind of assess? What is HTG doing in this area and kind of how far a long are you guys in that process?
Arlin Sorensen: Well, we have this year really made this a focus. So, we have systematized kind of the methodology of how to have a successful vendor relationship plan. And we have created forms and templates and a structure and have begun training folks on how to actually engage and make those things happen both on the MSP side and on the vendor side. So, we’re starting to see good results come out of it. And so, it’s going to take time for people to change the mindset to see some successes. But I’m a firm believer that because of the viral nature of HTG and the fact that peers do listen to peers as those successes begin to bubble up we’re going to see more and more people actively and aggressively get involved with planning. We’re going to continue to keep the light focused on it. In Q1, actually at our Phoenix meeting, we’re going to do something a little bit different along those lines, and we’re going to have an HTG Shark Tank where we’ll have eight of our members do presentations of their marketing and sales plans for the year, and they’ll be presenting to five executives who will be handing out over $50,000 in prizes for them to go and execute and grow their companies in 2017. So, we’re going to keep it fun and fresh, but at the end of the day, it’s all about communicating, committing, writing things down, and having a regular review process because it will work. And it’s just a matter of getting people into that mindset and making those commitments.
Ted Hulsy: Well, that’s great. I’m looking forward to the shark tank event. It’s going to be fun. You know on the financial side for a lot of MSP companies, why does this matter so much today? You know in terms of growth and building you know profitable enterprises, can you talk a little bit about… I’ve heard you speak recently about just kind of you know companies or owners that are really struggling with building a lasting legacy and a financial legacy for their business. Can you talk about why it matters so much?
Arlin Sorensen: Well, there’s a number of reasons why it matters. You know there was a period of time you know five years or so ago when margins on product sales in particular were very low. And you know it was arguable at that time that it may not make a lot of sense to spend a lot of time working on selling products because there just wasn’t that much margin in it. That has changed significantly over the last five years. Product margins have increased significantly. We’re seeing a lot of members in HTG that are making very good margins on product today. To be successful as a managed service provider, you’ve got to have standards and standardization, and the best way to control that is to take control of the purchasing process. So, that’s an important reason. But to your point, the reason that people start companies and grow businesses is typically for those to be retirement vehicle in the future, a way to create valuation and financial success. And the reality is that a well-rounded program that includes product and services has the best chance of helping us reach that goal. People buy companies today based on their ability to generate profit. And we need all the profit buckets we can get to be able to maximize what the bottom line results are for a company because that ultimately is going to get multiplied by some factor which is typically going to be the purchase price of an organization that’s going to sell. So, there’s certainly more value in recurring revenue, hardware or services sale, but there’s value in margin that comes from product, and if we can pull that along and do it at a profitable way, and leverage vendors to help us make that happen, it’s just extra gravy in the deal. So, there’s a lot of good reasons why product matters. The other thing that I often have a conversation about with managed service providers. A lot of them will say, “Well, I don’t really sell anything today.” Which is not at all true. Most managed service providers have got a stack of tools that they’re selling to their clients. You know in a lot of cases there’s over a dozen different suppliers that are involved in that stack and its critical stuff to make their managed service offering work. And so, there’s a lot of opportunity here to work closely with vendors to drive more profitability into the business which ultimately is going to turn into business valuation in the future and fund the retirement and the legacy that people are trying to leave behind.
Ted Hulsy: So for our listeners, if anyone wanted to get involved with HTG what’s the best way to connect with you all and start that discussion?
Arlin Sorensen: Well, the simplest way is to go on line to www.htgpeergroups.com. Not only is there all the information about HTG and what goes on there, but there’s a place there to apply and that gets the process started. So, that would be the place to start. There are also a number of success stories and videos there that you can watch of people that have been involved in the past, and kind of get a flavor for what we do. It’s a high commitment kind of organization. This is not something you come and go from. It’s something that you commit to and over time build the relationships that will help really change your company and your life. And that’s an important thing I think to call out here is that a lot of peer groups focus exclusively on driving business. While there’s nothing wrong with that, our approach is a little bit different. We believe that we have to have a holistic approach that not only looks at helping you succeed in business, but also helps you succeed in life, leadership and legacy. We often say that if we help somebody grow their business, but they fail in life, we have failed them. And so, we are very holistic in our approach, we want to help people in all those key things, and ultimately legacy is the most important because that’s the thing that you’ll leave behind that will cause people to remember you and what you’ve done for the rest of your life.
Ted Hulsy: Okay. Well with that Arlin thanks a lot for sharing a bit about the mission that HTG is pursuing out in the market and the world and a bit about how you’re helping business owners today to improve their lives and their businesses. So, thanks a lot for making the time.
Arlin Sorensen: Thank you Ted. It’s been a joy and we appreciate our partnership with eFolder and all that you do to help us along the journey.
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