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Ways to keep recurring revenue flowing in

IT shops supporting smaller businesses have been hit hard by the advent of cloud computing. While some have prospered by learning to adapt, others have struggled or gone under. What’s the secret to succeeding in a cutthroat market that’s rapidly undergoing huge changes? Craig Hollins may have the answer. Craig is an avid follower of WServerNews, our newsletter that goes out each week to over 500,000 IT pros around the world (That’s a million eyeballs! Subscribe here!) and I recently talked with him about how his company has managed not just to survive but to thrive as an “everything IT shop” with an eye on small business IT support. Craig is the business manager at PPS, a small MSP operating out of Perth, Australia. He has been working in IT for more than 25 years, the last dozen or so as an owner of two small IT firms. While he has accounts at LinkedIn, Twitter, Facebook, et al., you won’t find much activity on there. He’s not a social media junkie, preferring personal communication to the broadcast. In his off time, he likes exploring the remote Australian Outback and riding motorbikes. I hope you enjoy the interview, and more importantly, learn something from it!

MITCH: Craig, I understand your company is the sort of “everything IT” company that is typical of ones that offer small business IT support. How have the kinds of services you provide for small businesses changed over the last five years?

CRAIG: The basics of what we do hasn’t changed. We still have users that can’t configure their email, data that has to be backed up, equipment that breaks down or needs to be replaced. The primary focus of my IT career has always been service and support. Shifting boxes became unprofitable in the 1990s but it’s still something we do because that’s how you get the service part.

Of course, we have seen lots of customers move to the cloud — and some move back. Internet connections in Australia have always been challenging and only just now are we seeing our clients getting services better than ADSL [asymmetric digital subscriber lines]. This has enabled us to add managed phone systems to our portfolio with confidence that the Internet connection isn’t going to give us call-quality issues.

MITCH: I know a number of IT pros who have found it difficult to adjust to the changes that have happened in small business IT support because of the growing dominance of the cloud. How did your own company deal with these changes?

CRAIG: As I mentioned earlier, cloud-based customers still need support. For us, the focus has changed from maintaining server racks to helping users as the primary service. Being a small company we can offer a personal service where you can nearly always speak to the technician that helped you last time. That builds the relationship with the customer and, provided you keep them running, they are unlikely to go elsewhere.

Small business IT support: Key to success

Small business IT support
MITCH: You’ve told me that your No. 1 key to success as a small business IT support company is recurring revenue. Can you explain what you mean?

CRAIG: Every small business will, at some time in their existence, have cash-flow problems. When you are project-based your revenue is “lumpy” and unpredictable, especially when you’re small. Our goal has always been to have a consistent base revenue stream and the project work is the cream on top. Even if we get zero projects in a month we’ll still make money.

This works for the customer as well. They are also small businesses and have exactly the same issues we have when it comes to cash flow. They don’t like bills of any nature but, if they get a server crash and they’re faced with a large unbudgeted expense just to keep their business going, it’s a lot worse. For them, it’s better to be able to budget exactly for the future, even if it means they pay a little more.

What types of revenue? We really aren’t fussy. We have hosting for phones, email, websites, and spam filtering. We sell monitored antivirus by the seat by the month. We have even gone down the road of Hardware as a Service whereby we buy the computers, put them in, and rent them to the customer. And of course, there is the usual managed services and regular maintenance topping it up.

My biggest fear in running a business is paying the staff, the utilities, and the rent, in that order. I always try and make sure we have enough recurring billing to cover those items at a minimum. Once that’s done I can worry about running the business, not just where the next deal is coming from.

Dealing with cloud disruption

MITCH: Before the cloud upended many traditional small business IT models, what forms of recurring revenue could your company count from your customers?

CRAIG: Recurring revenue comes from many services and that number is growing. We have spam filtering, managed antivirus, managed services, website hosting, Internet domain management, DNS hosting, hardware rental, regular maintenance, and good old-fashioned end-user support. None of these are reliant on the cloud.

MITCH: What new types of recurring revenue were you able to tap into to maintain and grow your small business IT support services in the face of such rapid change?

CRAIG: One of the things I used to hate before the cloud was licensing. No vendor has ever made licensing applications easy for the small reseller. For example, the time it took to license 10 seats of antivirus for a year was exactly the same as 100 and the end user couldn’t understand why you wanted to charge them an hour labor just to update the license key on their server. Now we don’t do any of that — we don’t even sell the renewal. Cloud-based licensing has eliminated the need to quote and sell AV renewal every year —- now it happens month by month and nobody bats an eyelid.

Small business IT support
Our biggest growth in cloud-based recurring revenue? Backups, pure and simple. Our challenge here is finding backup software vendors that support cloud backups that aren’t to their locations. Most want to bundle their cloud storage services with their software but our clients aren’t interested in having their data stored in an unknown location, especially if it’s out of the country. Sometimes you like the software but not the cloud and other times vice versa.

Our solution has been to offer cloud backups to our server room. Our marginal cost is small, the software is off the shelf (ShadowProtect with ImageManager) and it ticks all the boxes. What’s more, we make the money providing the storage, not the cloud vendor. In the event of a disaster, we’re not trying to download hundreds of gigabytes of data to do a recovery — or use the backup provider’s cloud recovery services.

MITCH: Do you think there will be more changes in the years ahead? Are you looking at any potential new sources of recurring revenue from small business IT support?

CRAIG: I think the basics have remained the same. Small business owners want a relationship with their support provider and are relying more and more on them for services and support. They want to know that they are protected from disasters, maintenance is done when required, and prompt help is available when required. I don’t see that changing any time soon.

What does the future hold?

MITCH: What advice would you give to IT pros struggling to keep their small business IT support services going?

CRAIG: Standardize on as much as you can. All of our customers use the same antivirus software, same backup software and the old Windows/Office combination. We try to standardize on the desktops, printers, routers, and other components as much as we can too. Every bit of tech has its quirks and workarounds — by standardizing we’re reducing the time it takes to troubleshoot problems, which, especially for our fixed price customers, lowers our costs.

Customers also need to understand that we sell time and if they ask us to fix something, sometimes it takes longer than expected or there is more to the job than we were led to believe at the quote. I’ve seen many IT providers reduce their bill to keep the customer happy — repeatedly doing it for the same customer after almost every job. This is nothing less than transferring your profit to the customer due to circumstances beyond your control. When I have a customer complain about the bill I immediately start talking about fixed-price support or managed services.

Remember the basics. Good, prompt and reliable service will keep customers happy every time.

MITCH: Anything else you want to add about yourself or your company for our readers?

CRAIG: We’ve focused on the micro-clients — no more than about 25 or so seats. Most of the competition doesn’t see them as desirable clients, which means we have less competition. Also, our business is a similar size so there’s a sense of “they understand us” — we have the same challenge in our business that our customers do so we can advise them with a bit more credibility.

The other advantage of micro-clients is your skill set can be flat. You don’t need enterprise architects, DBAs, WAN specialists, and the assortment of other disciplines required when servicing the larger clients. Most of the networks are simple and you rarely get problems beyond a Level 2 tech. Finally, if you standardize your configuration, then every tech has the skills to work on every client site. On the odd occasion that we do need skills we don’t have in-house, we have a network of higher support who we can call in for piecework.

MITCH: Thanks very much for giving us some of your valuable time.

CRAIG: More than welcome, Mitch.


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