Bruce Nelson, President and owner of Vertical Solutions, recently met with the Arrow Cloud Team to discuss their business transformation. The frank and open discussion that followed is excerpted below.
Can you describe the business as it stands today?
Vertical Solutions serves more than 200 mid-market clients with IT cloud and managed service-led solutions. Our strength lies with domain expertise in Microsoft Dynamics GP cloud and IT Managed Service solutions, typically with 50-150 end-users, but ranging up to 2,500 end-users. Since 2007, the company has been adding managed IT, cloud and security services, and has seen steady growth in revenues, new clients and through organic growth with existing clients largely led by the monthly recurring revenue managed and cloud services offerings.
Can you describe the business prior to the 2007 strategic change?
The company at the time was operated as two businesses. First there was the Microsoft Great Plains accounting software reseller that provided licenses, integration, training and the underlying technology. The second business provided reactive back-office support, maintenance and technical refresh solutions. The back-office support business was becoming commoditized and faced price and competition pressures, and we recognized that the stability of the customer base was at risk. The reseller business was dependent on ERP offerings as a key driver pulling through technology sales.
It became clear that an integrated business, leveraging the strengths and resources of the two entities, would transform the customer experience and strengthen the partnership with our clients. In 2007, we combined the two companies and began to operate the company as Vertical Solutions.
What were the principal challenges you faced running the businesses?
Running a small market IT break-fix support model left us in a position where we were always “waiting to get fired.” Lacking insight to the equipment we supported, it was hard to differentiate our solution. Any single emergency response might not meet client expectations, and the nature of the competition always created risk to future contract renewals. We felt there had to be a better way to provide service then the traditional break-fix model.
What were you concerns about making the change?
We needed to move the delivery model from reaction to prevention, and from time-to-repair to reliability. This required a different investment approach, and we believed we’d see better customer retention. But we needed to have better access to alerts and performance data to drive fact-based responses and support ongoing recommendations.
We had a pretty big task in changing our clients’ perceptions, too. We knew we had to shift the conversation to show them we were offering a better approach in delivering it and that we had the capability to deliver. We decided to focus on BCDR solutions as the first use-case and worked collectively to shift our team’s mindset from where they were – from sales “pursuit of the big deal” to engineers that were the “nice guys to help fix it when it breaks” to a culture of ownership of the customer’s systems and results.
Let’s walk through the changes that occurred as you began to add services solutions. How did you motivate the organization to change? How were you able to get the team to align with your mission and goals?
We started by looking at a specific business problem and use-case to drive the change. We were integrating in-house accounting solutions with tape backup to provide a disaster recovery copy of the critical data. This meant that in the event of a disaster, the client ended up with the responsibility for building a recovery server, installing the accounting application, and running a recovery routine to get their application running again. We saw an opportunity to offer an MRR service that included on-site recovery solution as a warm standby in the event of a failure. The MRR service included testing and restoration management – taking the guesswork and anxiety out of recovering this critical application. If the client also wanted off-site data backup – we would add a L2 cloud backup service. Working on this offering got the team into the mindset of identifying, building and selling a valued customer experience and solution. Clients liked the proactive recovery solution over the traditional break-fix approach.
This incremental change helped to instill a new belief model. We found our conversations with customers reached deeper into the best ways to achieve the health of IT and the organization. Customers agreed that it was easier to prepare and, when possible, prevent a catastrophic event vs. managing a catastrophic event. The result of changing the conversation and delivering a measurable/reportable experience was the MRR contract.
What was required to prepare and deliver ongoing support?
We needed to be able to better track data and report results to our clients. We built out our monitoring and management systems over the following four years. We continued to improve our IT management processes, software tools, workflows, ticketing systems and status accessibility to our clients. We also integrated our new phone system to the management software. We are vigilant in identifying problems and process gaps, and are to this day learning and improving the processes.
What was the needed to change the sales teams’ behavior?
We decided to reduce transaction incentives and increase incentives on MRR deals. We did see sales turnover during the first three or four years, but this has improved steadily since. Today, we incent our account executives to bring in new clients, as well as make sure our existing clients continue to be happy.
It’s been seven years since you rolled out the first hybrid managed service/cloud offering. What was the impact on the business?
We’ve seen our customer retention rates increase. Generally today the only losses come when our clients are being acquired or have significant change in their business models. Clients get stable/consistent support, predictable SLAs, and they are able to access our level 3 engineers to get informed advice. Customer satisfaction in now very high, and we are seeing organic growth from these MRR services clients.
With half of our revenues coming from recurring contracts, it’s significantly easier to manage the business. We have a better line of sight to budget, manage cash-flow, plan for hiring, and invest and grow our people. It’s just much easier than it was in 2009.
What advice would you give to a solution provider considering a move into managed services and cloud?
Don’t do everything at once. We began slowly, and, over the past seven years, we have implemented three cycles of change. As an organization, we spent six months building the first service “model” and getting a complete solution. I’d advise in building a very tangible business solution – understand the full breadth of the need and build a business case. Stick to your strengths. Our services-first transformation was built around unique expertise (Great Plains / MS-Dynamics). Invest in your team’s success. Provide the knowledge and resources to help your team fully articulate the value and benefits of the solution. Remain nimble. Our most recent solution moves our MS-Dynamics offering to IaaS, further improving the customer economics and availability.
Editor’s Note: This post was originally published in August 2015 and has been updated for accuracy and comprehensiveness.