A simple business philosophy has largely guided Michael Cook in operating his Norwood, Mass., managed services provider (MSP).

“It’s kind of common sense,” said the CEO and founder of 17-year-old Corporate IT Solutions (CITS). “I never had a lot of advice or consulting.”

That changed last year, when Cook felt he could no longer stand by in the face of some worrying and pervasive trends.

CITS was continuing to grow revenue but less and less was reaching the bottom line. Consecutive losing quarters piled up and 2015 ended as the company’s worst ever.

The MSP had developed an aggressive sales operation over the years that made a brisk business selling one-off IT projects, hardware and managed services.

But Cook knew he needed a greater emphasis on managed services.

“We grew too fast,” he explained. “Our monthly recurring revenue should be 20 percent higher than our operating costs.”

At the time, CITS was working with consulting firm Clarity Channel Advisors (CCA) on the design, rollout and marketing of a new desktop-as-a-service (DaaS) offering.

Cook turned to CCA to see if they might also provide strategic guidance in turning his company into what he knew it should become.

“All I wanted to do was focus on monthly recurring revenue,” he said.

Painful changes

James Lippie, a principal with CCA and former MSP owner, went to work.

“Mike knew what he wanted,” Lippie recalled. “What we did is, I came in and helped him restructure; we completely revamped the sales operation.”

Among the advice from CCA:

  1. Change the structure of the sales team. CITS converted from an account executives model, to one with separate roles for salespeople and account managers. Under the previous approach, salespeople were also responsible for managing customer service on existing contracts. In a growing company with lots of accounts, sales team members can spend a disproportionate amount of time servicing existing accounts and too little time closing new deals.
  2. Devise a new commission plan. CITS’s commission structure incentivized the wrong behaviors and was costing the MSP too much money, Lippie said. The previous sales structure encouraged the team to sell whatever was easiest to sell, which too often meant hardware and one-off professional services deals. The new plan was designed to drive sales of services and increase the percentage of recurring revenue.
  3. Focus culture purely on managed and cloud services. Along with the new incentive structure came a new company philosophy. No longer was CITS a reseller that also sold services. It would now be a pure services provider. That meant embracing the difficult decision to turn down a significant amount of business that didn’t fit into the company’s new direction. From now on, CITS would only sell hardware to or perform professional services projects for recurring revenue clients.

CITS needed to stop pursuing business that caused it to stray from its core mission, Lippie advised.

“When salespeople shoehorn that type of business in, it causes inefficiencies that cost the company more money,” he explained. “Sometimes the right answer is ‘no’ to new business.”

The transformation plan went into effect in December of 2015.

Just as important as the technical business advice, Cook said, was the emotional support Lippie provided when the changes resulted in an exodus of sales staff.

Of the 10-person sales team that existed, all but two were gone in short order. A few hires later, the sales team now stands at five.

Profit rebound

CCA was invaluable in helping CITS stay focused on the end goal and offered reassurance that – despite the upheaval – the transformation was on track.

“Jim instilled a certain calm and peace,” Cook said.

By the middle of this year, management could see clear evidence that CITS had reversed its freefall and is heading in the right direction.

Revenue from selling hardware is down 44 percent, and the cost of sales commissions fell 40 percent.

Meanwhile, monthly recurring revenue is up 33 percent, while EBITDA grew a whopping 300 percent, year over year.

“This is going to be our best year ever,” Cook said.

CCA developed the Total Service Provider (TSP) score, a four-tier scale they use to measure a tech solution provider’s progress in transforming itself to succeed as an MSP of the future.

By that measure, CITS climbed from the lowest level, a Tier 4, to a Tier 2.

“I couldn’t be happier with our turnaround,” Cook said.

“Our cloud business is stronger than ever and we’ve drastically increased the value of the company,” he continued. “It was difficult coming to grips with some of the decisions necessary to evolve our business, but based on where we are now, it’s all worth it,”

 

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