The MSP landscape can be a tumultuous one. Technologies are constantly changing and new players are entering the space, creating both threats and opportunities for MSPs. In order to survive in managed IT services, you need to chart your course to success.
That's exactly what Continuum's CEO, Michael George, spoke about in his keynote at Navigate 2014. In this week's episode of MSPradio, we play part 1 of Michael's keynote address, where he shares his thoughts about the industry and how MSPs can leverage smartsourcing to grow their business and thrive in managed services.
Whether your a Continuum partner or not, I think you'll really enjoy this radio segment. Tune in now and learn how to find your True North.
Tune in this week and subscribe to our podcast on iTunes.
Nate: Hey folks, welcome back to another episode of MSP radio. As always I’m your host Nate Teplow and I know I have been throwing a lot of navigate stuff at you recently. We’re going to go back to Navigate one more time but I promise you it will be worth it. We’re going to be playing the recording of Michael George’s keynote presentation at navigate 2014, just a fantastic overall presentation. I think there’s a lot that MSPs can take away from it whether you are a partner of Continuum or not. I think there is plenty you can learn from Michael and his expertise.
Before we get into it as always, I want to remind you to subscribe to our podcast on iTunes. You can get these episodes straight to your iTunes account. We’re also available but via the Stitcher App for android users and the pocket cast app, we are available on many different channels, you can find us there.
Follow us on Twitter using the handle at follow continuum and you can let us know what you think of the radio show with the #MSPradio.
So as I mentioned, we’re going to be playing for you are recording of Michael George’s keynote presentation at navigate 2014. He’s a great speaker, he gave a great presentation. We’re actually going to split this into two episodes. This will be part one this week and stay tuned for part two on a later week of MSP Radio.
But again Michael’s presentation was great. I think there’s a lot that MSPs can learn, he spoke about some of the challenges and some of the opportunities in the MSP market these days. He gave some interesting labor dynamics so I think I find this really interesting so I’m just going to go ahead and play it for you.
Here is Michael George’s keynote address part one after navigate 2014!
Michael: True North, a navigational tool. It’s been around since the early 1300s, discovered by the Phoenicians based on magnetic north. And yet as you just saw illustrated here with that and all of the most sophisticated tools available of our time, Peter talked about them in modern sailing and you saw it in the navigational command? Compasses, mapping systems, GPS, everything in the world and yet there they were bearing down on the lighthouse. They were missing something, right?
They were not paying attention, they didn’t have situational awareness. How is it possible? It happens in business every day. And you have to pay attention to a lot more than just the instruments before you.
Look you are our strategic partner and our investment in this here is to help you with all the navigational tools so that we can manage ourselves forward to be successful in this very interesting time. We are in the midst of a major paradigm shift. In IT, it’s often called a sea change by coincidence, and we are in the midst of one now. And we need all of the great instruments of our time available.
And over the next hour and over the next 48 hours we intend to provide you with enough instruments, enough information to chart your own course to true North. But it will take more than just us. It will take you too, it will take us together. We listen to you all throughout the day yesterday, we spent our time in our service delivery work group with the NOC and our partner advisory Council and tomorrow at 7 AM our service delivery group for the service desk meets.
You are a listening post for the market. As you know, we are hundred percent committed to the channel which also means we are hundred percent dependent on you. We are depending on your success. Our success together is explicitly tied to one another. So it’s important that we get this right, that we have the right course but that you also take the right action. And we are building that course.
Look, you are already our partners and we are yours. We made that choice so it’s to no benefit to us to stand up here and try to sell you anything. But I do think it’s important that we share with you and you with us, why we have chosen one another, why we are partners. And it’s our goal over the next two days to remind you and to perhaps illustrate why you have made that choice. And why it’s important so that you can best benefit from the platform you have already made an investment in as we have made an investment in you.
Peter talk about change, the unpredictability of it and there is some great catchphrases around it; change is inevitable, it is the only constant and these are true. But as Peter noted, it is important to really understand those changes and to embrace them and to take as immediate action as quickly as possible.
The year 2000 was really the last time we had one of these paradigm shifts and in fact in IT it happens about every decade or so. And it’s important to look at the history of this experience because history repeats itself and it informs our decisions in the way that we address the challenges we face today. And the year 2000 got its own name, Y2K, that was the paradigm shift of its time but it wasn’t alone, it was also at the intersection of two very important phenomenon’s. The commercial use of the Internet and what Thomas Friedman so clearly articulates in his 2005 bestseller The World Is Flat where he illustrates the globalization of IT and the enablement of outsourcing.
And it gave meteoric rise to companies some that have even been around for a while, people saw a Red Hat, Juniper networks, even WebEx, eBay they been a world for a while. But through the course of those dynamics, they had explosive growth. And of course right around the Y2K era, it gave birth and was the cradle to some of the greatest technology companies of our time! Netscape, Amazon, Google, Facebook.
But in those same set of dynamics, those same changing winds, we had companies that failed, thousands of companies that failed in some really big ones, big multinational companies! Like WorldCom, UDS Junie Phase, Nortel Networks, they failed, they crashed, they were bearing down on the lighthouse, they hit the rocks! How is it possible that two companies could have fundamentally the same kinds of profiles, have the same kinds of instruments to read all of these things and yet have such traumatically different kinds of outcomes through the same paradigm shift?
Well, globalization changed core economic concepts. Friedman argues in his book that the split of services from physical activities into components that could be subcontracted and performed in the most efficient and a cost effective manner. And of course with India’s 1.1 billion human population, this incredible competition creates a phenomenal knowledge metocracy and it’s like a factory, like churning out and now through the Internet, being able to export some of the most gifted computer science software engineering and technical minds the world would ever know.
Again it’s important to understand this history. It should inform the way we address the challenges we face. Because we are at the threshold of an enormous opportunity. The small market, small business market is the underlined fabric of our economy and the engine of our growth. It represents 64% of the net new jobs in the United States over the last 20 years and is expected to do the same for the next 20. We measure small businesses by companies that employ 500 people or fewer and I know many of us here serve companies that might have 1000 or more but our primary market, our core market is represented by 28 million companies that employ 53 million people, it’s big!
And those people today hold 2.7 devices in their hands to gain access to their IT systems. That’s over 140 million devices in the workplace. And that’s growing at a rate of 22% on a compounded basis. But no matter how you measure it, it’s enormous! Managed services is expected to grow to $241 billion over the next five years. I will say it again, $241 billion! It’s enormous!
But as we sit here today, you know you are looking at these numbers and saying, “It’s difficult for me to gain access to that market,” succeeding in this kind of industry and grabbing your slice of the pie it just doesn’t seem as easy as it looks. Look, thanks to the dynamic forces of globalization, compliance and regulatory issues, labor competition, fluctuating IT needs, I’m sure a lot of us here in the room feel like this guy. And some don’t.
Small business IT needs are becoming increasingly more complex; virtualization, cloud computing, mobility, backup and to get the kinds of skills in our organizations to accommodate that environment become more and more difficult. It’s again, not as easy as it looks. But for some, it’s more clear than others.
Larry Carrigan is a 20 year IT veteran from the healthcare industry. Where he saw firsthand the increasing complexity of IT environments and the increasing costs to try to serve them. And less than four years ago he decided to break out on his own and become a managed service provider. And he did so with Friedman’s concepts in mind in the forefront of his mind. He wanted to be 100% outsourced. So much so he sought an organization that understood that principle and found CMIT and CMIT enabled him to become an instant MSP, stood him up as one “just add water” and there he was. And it enabled him with a platform to invoke this fully outsourced model. And he found a partner in Jonas Fernandez who also understood that concept. And they embarked to go and put 100% of the RMM, their backup [with vault 12:24], 100% of their service desk, tech advantage, everything, hundred percent outsourced.
In fact Larry and Jonas have the distinction of wearing a pin on their lapel that says, “I am an elite Continuum partner.” Because they have 100% of their servers on the proactive elite server care. And while nearly 50% of our entire partner base uses elite server care for at least one server, there are only 58 of you in this room that have 100% elite server care.
The way they embarked on their business is not just outsourcing, it’s smart sourcing. The division of labor between Jonas and Larry is clear. Jonas is to be the operations executive to run this outsourcing model and Larry is to go and find new customers. And in the less than four years they have been in business, they measure their success not by the number of technicians that they employ but by the amount of gross revenue they can produce by hiring the fewest people possible. And to grow at a half $1 million a year from zero in four years and higher four people, five people, one individual for every half $1 million, that’s profitable, that’s smart sourcing.
End of recording
Nate: All right, you are back here in the studio with Nate. Hope you all are enjoying this recording of Michael George’s keynote address at Navigate 2014. We’ve got to take a quick commercial break here. Coming up next we will continue Michael’s keynote address so stay tuned for that and we will see you all in a few minutes.
Nate: Hey folks, welcome back from our commercial break you are here on MSP Radio. I am your host Nate Teplow and today we are playing for you are recording of Michael George’s keynote address at navigate 2014.
Just to kind of clue you in on where we are, Michael is talking about Larry Carrigan, he’s a CMIT solutions franchisee, he’s a partner of Continuum and Michael is talking a little bit about his success story and how he’s gone with this very innovative completely outsourced business model. So we will keep it going with Michael George’s keynote at navigate 2014!
George: So Larry had a distinct advantage. He understood this outsourcing model right from the get-go. He set his sails on that true North direction from the beginning. And some of us perhaps have the legacy of our business or selling hardware, break/ fix. The good news is as it’s been so well said, you can’t change the direction of the wind but you can adjust your sails to get to your destination.
So I’m here to tell you that you can have a financial model like Larry’s. You can have that kind of top line growth and that kind of bottom-line results, that kind of profitability. And free yourself to spend more time going out and getting new customers. It’s going to be an imperative. We are providing all the navigational tools to help you do that, we are providing the platform to help you outsource to it and it’s a great way to stay off the rocks.
Look, a well skilled IT generalists today in the United States is a tough one to find. In fact look at your own advertisements for people that you are trying to hire. You want them to have a broad set of skills, you want them to be deep in certain areas, a terrific bedside manner, great interpersonal skills, a little bit of salesmanship, there aren’t a lot of them out there. In fact you could argue that you are all out there chasing the same 13 people around the country! It’s really difficult!
The average generalists today and $63,242 a year but that’s just the base salary. If you want to be intellectually honest with yourself about what it really costs you, think about taxes you pay so depending on which state you live in, there’s a tax factor. And think about the benefits you provide. It’s in the mid $80,000.
And with wage inflation in the IT services business at 11% a year from 2000 to 2013. But the average cloud-based expert, the cloud of course is being far more pervasively used in the enterprise where salaries are higher. But in 2013, is $132,000. So guess where all our good people are going? And guess where all our wage costs are going?
So the need to leverage this smart sourcing model is becoming increasingly more important. Fundamental labor dynamics in our market, in our industry is enough to sink a ship. The concept of elastic computing right, the ability to use, to receive the dynamically delivered right technology skills at the right time and at the right place on demand.
Let’s take a look at those labor dynamics inside of our operation, inside our business. Let’s say you are a small to medium sized and managed service provider and you’ve got 10 people in your technical team. Well, the bad news is that you have a fixed labor cost and the really bad news is you have fixed capacity because they come in at eight in the morning and they leave at 6 o’clock at night on Monday night and they do that Monday through Friday. The fact of the matter is IT demands are episodic; they don’t happen when you want them to, when people happen to be available.
And so the fact of the matter is that what you really need is 14 people from 8 AM on Monday morning until noon on Tuesday because of the demands and then from noon on Tuesday until midmorning on Wednesday you only need six and so all of the service you are providing above your capacity line and you delivering poor customer service. And all that you are delivering below that line you are providing a poor economic to your business.
And it’s easy to convince ourselves that while people are idle, they are doing a project or they are doing other things. But the share transition cost from one of those events to the other is very costly. And of course, if one of those 10 employees don’t show up for 1work one day which they do, the other nine that showed up regret that they did because the problem is exacerbated, it’s not a linear problem.
So in an outsourced model, you can begin to imagine what the labor dynamics for us could look like. Now there is a great metaphor, a joke metaphor using two cows for political satire but also to identify a company, an American company. In fact an American company is one where you have two cows and you sell one and force the other one to produce enough milk for four cows and you have to really surprised when it drops dead. And then a capitalist Corporation is one where you have two cows, you sell one cow and buy a bull and you make them generate a really big heard.
But there is a smart sourcing corporation where you have two cows, you keep them both but you outsource the milking to the herders in the neighboring fields and you get them to produce all the milk and get more and more cows. And you have the ability to go over and grab a cow on demand as you need it and give them back and you don’t have to provide any of the caring or the feeding for those cows. And when you run a smart sourcing corporation like that you get to get up here at next year’s navigate and do the keynote.
Look, a very common mistake amongst small businesses particularly in IT where the demands are episodic and they require your immediate attention is that you put your best resources on your biggest problems. But the fundamental tenet of good business, of best practices is to put your best resources on your biggest opportunities.
And so to be clear, we don’t ever recommend you let go of anybody in your organization. In fact just the opposite, if you have good technicians, you need to embrace them, hug them, show them a lot of love. But you need to empower them with this model because they are threatened by it at the surface and they need to engage into it and they need to understand it.
Y2K also gave birth to the phenomenon of SAAS. A Software As A Services company. And less than 15 years ago it gave birth to a company called salesforce.com. They started with zero revenue and today they produced $4 billion of revenue and have a $36 billion market. We’ve taken Friedman’s concept one step further, the idea of SAAS for us is service as a service.
Again, dynamically delivering the IT services that you need when you need them, when you want them on demand. And it enables you to optimize the good technical people that you have but again you need to enable them.
Now as they said, the best companies in the world are ones that gets great because they listen to their customers, in our case, our partners. And we have improved our services in the last three years but we have a long way to go and we need to listen to you. We want to be your best back office employees. And we need you to help us make it that way. And if you are reluctant to put somebody over on the service desk, tell us why, tell us what we need to do and we will execute it. Or move projects to the NOC, tell us what you need from us to be great and we will make that happen.
Hainan Lander started Optimal Networks 23 years ago as a traditional MSP based in Rockdale Maryland. The traditional var turned MSP was a break fix business had been around for 10 or 12 years and had gone up to about $2 million a year, pretty respectable. And if you wanted to run a lifestyle business, that was a pretty good lifestyle. But Hainan is a very smart guy, very well educated and very ambitious in all the right ways, he wanted to really grow his business and he knew that having size would matter in his business.
And he engaged his accountant who happened to be also just a really good business executive, a really good businessperson. And he shared with his accountant his frustration and the accountant sat him down and said, “Hainan, you need to be intellectually honest with yourself. Numbers don’t lie, sometimes people do but numbers don’t. And so let’s do the math because the math really matters. And let’s envision what you want your business to look like five years from now. And let’s write it down and let’s put it on the board and let’s stare at it and the let’s just figure out how to execute against that and how to do that.”
And so we put this particular little swish on the hats that are in your bag. We love the campaign from Nike “just do it,” because so many of you know what to do, you actually know what the right thing to do is to drive your business. But for one reason or another, there is an obstacle in your way – “there is a customer that we have been serving this way for 15 years and we have to continue to serve them that way or if he’s going to leave me,” or “a technician that an attitude about outsourcing,” whatever it might be and Hainan that’s for you and for others, just figure it out and just do it.
Nate: Alright folks, unfortunately we have to stop it there for today. We are coming up to the end of our episode here. So we are about halfway through Michael George’s keynote at navigate 2014. We’re going to play for you the second half of this keynote in a future episode of MSP Radio so definitely stay tuned for that and keep your eye out for new episodes coming up.
Before we say goodbye again, I just wanted to remind you to subscribe to our podcast either on iTunes or via the Stitcher app. You can get these episodes straight to your smart phone or iTunes account. Follow us on Twitter using the handle at follow continuum and let us know what you think of the show with the #MSP Radio.
So again folks, thanks for tuning in to part one of Michael George’s keynote address. We will be playing part two at a future date so stay tuned for that and we will see you next week on MSP Radio!