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HERE, NOW, NEXT - REWIRING FOR

GROWTH & SUCCESSMitch Morgan

Principal, Growth Achievement Partners

What we know in 2016…

• Aftermarket in traditional business is under continuing (volume & margin) pressure.

• The trends for Equipment and Aftermarket revenue and profit pressure will continue…and perhaps accelerate.

• Medium sized independents are doing well if they are able to diversify and achieve market segmentation.

• The Managed Services/Cloud Services market has become mainstream in the SMB space.

Determine Your Target Revenue Mix

Get Better at Cross Selling to your Base

Move from Technician to Consultant

Managed IT Services: Manage to the Metrics

Determine Your Target Revenue Mix

Get Better at Cross Selling to your Base

Move from Technician to Consultant

Managed IT Services: Manage to the Metrics

Equipment Sales34%

Aftermarket & Supplies

33%

Managed Services,

Solutions, etc.33%

Diversified Model

These market segments are

flat to slightly declining

This market segment is projected

to grow by 25% to 30%

Equipment Sales, 50%

Aftermarket & Supplies,

50%

Traditional Model

Equipment Sales34%

Aftermarket & Supplies

33%

Managed Services,

Solutions, etc.33%

Diversified Model

These market segments are

flat to slightly declining

This market segment is projected

to grow by 25% to 30%

Strategic Revenue = Enterprise Value

Metric/Value AverageAcquisition

ValueAcquisition Price $1,175,000

Recurring $897,264 1.31Topline $1,220,000 0.96

Contracts 31 $38,524Average MRR/Contract $2,521

Headcount 8 $146,875

Every new contract adds $38,524 in value.

Each $100,000 in topline adds $96,000 in value

Each $100,000 in Recurring adds $131,000 in value

Determine Your Target Revenue Mix

Get Better at Cross Selling to your Base

Move from Technician to Consultant

Managed IT Services: Manage to the Metrics

In our industry…

WE TELL OURSELVES …

• Our customer list is our #2 asset behind our service/aftermarket.

• We are totally committed to diversification, with a goal of 30% of topline revenue in non-core within 3-5 years (beginning in 2014).

THE REALITY…

• Our list (and our CRM) is very spotty, with incomplete information (at best) and we have really only used it for reps to keep track of follow ups and managers to monitor pipeline.

• Senior management spends (by our estimate) less than 5% of time on new markets, and we don’t allocate resources to this to match the goal.

This Market is Getting

Decidedly More Vertical

12

Confirming the Target Market – M.G.R. Assessment

Confirming the Target MarketRanking Potential Target Markets

13

Market

Size

Fit with

Cust. Base

Fit with

Growth Area

Education (K12)

Manufacturing, Large (101+ empl.)

Construction

Manufacturing, Small (6-50 empl.)

Manufacturing, Medium (51-100 empl.)

Energy / Utilities

Government

Healthcare (Hospitals)

Banking (Retail & Commercial)

Business Services (21+ empl.)

Market

Size

Fit with

Cust. Base

Fit with

Growth Area

Advertising and Design

Entertainment and Recreation

Personal Services (51+ empl.)

Insurance Carriers

Banking (Investment)

Hospitality

Healthcare (Life Sciences)

Media and Communications

Healthcare (Payers)

Non-Doc. Intensive Industries

Most Attractive Segments Least Attractive Segments

Confirming the Target Market Example - Strategic Initiative: Managed Print Services (MPS)

Market Segment Market

Size

Fit with

Cust. Base

Fit with

Growth Area

1 Manufacturing, Large (101+ empl.)

2 Education (K12)

3 Manufacturing, Small (6-50 empl.)

4 Manufacturing, Medium (51-100 empl.)

5 Construction

6 Banking (Retail & Commercial)

7 Business Services (21+ empl.)

8 Healthcare (Hospitals)

9 Government

10 Education (Higher Ed)

11 Automotive

12 Printing and Publishing

13 Legal

14 Retail, Large (51+ empl.)

Tier 1

Tier 2

Tier 3

Priority

14

Big Data and Ideal Client Profile (ICP)

The model is effectively identifying key signals on which to base scores. There are

currently 187 Key Signals the model has identified as significant contributors to the

likelihood of a win consisting of Firmographic (57), Social and Web Presence (47),

Website Technology (74), and Spam Filtering (9). In aggregate those scores are

telling us that the high opportunity scored companies will have traits such as:

• Private ownership

• Non-enterprise level businesses

• Companies that are “technology friendly” but not sophisticated

• Companies that are using technology that smaller companies use

72

4229

0

10

20

30

40

50

60

70

80

Average Win Average ND AverageLoss

Model Scores

“A” Scores• "A" accounts represent 57% of the wins

• "A" accounts delivered 69% of the revenueLead Score # to get a Win

A (70 and above) 3 Deals

B (50-69) 8 Deals

C (25-50) 17 Deals

D (Under 25) 58 Deals

Determine Your Target Revenue Mix

Get Better at Cross Selling to your Base

Move from Technician to Consultant

Managed IT Services: Manage to the Metrics

Technology Roadmap• Primary sections should include the following items:

• Current industry trends and business goals of the client

• Operational Review over the current period

• Current state of the environment relative to the Roadmap

• Upcoming client goals/initiatives

• Mutual Action Plan for the upcoming period(s)

• Leveraged to administer the program and position the ongoing maintenance and expansion of the account

vCIO Services

• Features:• Our vCIO helps you with a Technology Road Map,

customized for your business.• Our vCIO spends all of his time helping businesses

like yours to navigate their technology direction.• He is backed up by a team of technical resources

• “With the changes in technology, it would be great to have a Chief Information Officer…rather than hire one full time you can use ours when you need him.”

Before going on the Call

• Website Review

• Technology Trends in ________ Industry

Determine Your Target Revenue Mix

Get Better at Cross Selling to your Base

Move from Technician to Consultant

Managed IT Services: Manage to the Metrics

How Healthy is your Managed IT Services Business ?

• Are you on a path to Double Digit Operating Income?

• Is the business going to achieve 30% of your topline revenue in the next 36 months?

• Do you have 18 Initial Appointments and 2.4 closed Managed Services transactions per month?

• Is the business trending toward achievement of Critical Success Factors for high performance?

MSP Critical Success Factors Target1 Average Seats Per Contract 20.2

2 Revenue Per Seat

3 Number of Contracts

4 Revenue Mix (MRR/Project & Hourly/HW & SW)

5 Seats Managed Per Engineer (internal HD/Outsourced HD)

6 Service Margins (Pre-Labor)

7 Service Margins (Post-Labor)

8 Hardware/Software Margin

9 Revenue Growth

10 Admin Expense %

11 Sales Expense %

12 Operating Income %

There is also a set of Sales Pipeline and Conversion Metrics that are critical.

Critical Success Factors Lead to Success

Average Revenue per Seat

x

Number of Seats

x

Number of Contracts

=

MRR Target Attainment

MSP Critical Success Factors Target1 Average Seats Per Contract 20.2

2 Revenue Per Seat 74.40

3 Number of Contracts 65

4 Revenue Mix (MRR/Project & Hourly/HW & SW)

5 Seats Managed Per Engineer (internal HD/Outsourced HD)

6 Service Margins (Pre-Labor)

7 Service Margins (Post-Labor)

8 Hardware/Software Margin

9 Revenue Growth

10 Admin Expense %

11 Sales Expense %

12 Operating Income %

Revenue Mix

MRR

Hardware

& Software

Projects

&

Hourly

It starts with

MRR… those

65 contracts

provide provide

$106k in

recurring revenue

Land & Expand with

technology replacement

and

a solid HaaS program.

If the contracts are

structured properly,

and you manage

the account properly.

MSP Critical Success Factors Target1 Average Seats Per Contract 20.2

2 Revenue Per Seat 74.40

3 Number of Contracts 65

4 Revenue Mix (MRR/Project & Hourly/HW & SW) 52/16/32

5 Seats Managed Per Engineer (internal HD/Outsourced HD)

6 Service Margins (Pre-Labor)

7 Service Margins (Post-Labor)

8 Hardware/Software Margin

9 Revenue Growth

10 Admin Expense %

11 Sales Expense %

12 Operating Income %

• The outsourced partner does 85% of the work, and you collect +/- 70% of the revenue.

• In order to achieve appropriate margin, Gross Profit from day 1, and ability to scale…select the best option here.

0

10

20

30

40

50

60

70

80

90

Revenue Split Incidents

MSP Continuum

Division of Revenue and Labor

MSP Critical Success Factors Target1 Average Seats Per Contract 20.2

2 Revenue Per Seat 74.40

3 Number of Contracts 65

4 Revenue Mix (MRR/Project & Hourly/HW & SW) 52/16/32

5 Seats Managed Per Engineer (internal HD/Outsourced HD) 149/189

6 Service Margins (Pre-Labor) 75.8%

7 Service Margins (Post-Labor) 48%

8 Hardware/Software Margin

9 Revenue Growth

10 Admin Expense %

11 Sales Expense %

12 Operating Income %

67% with

Outsourced

HelpDesk

52% with

Outsourced

HelpDesk

HaaS Impact

• HaaS opportunity – a change in mix can impact margin 15+%, and improve the bottom line by 5+% (as a % of revenue)

• Model calls for 35% GP• GAP clients are experiencing up

to 42%

• 34% of initial sales have a HaaS component

• 47% of expansions have a HaaS component

• This is a really important component to account retention

MSP Critical Success Factors Target1 Average Seats Per Contract 20.2

2 Revenue Per Seat 74.40

3 Number of Contracts 65

4 Revenue Mix (MRR/Project & Hourly/HW & SW) 52/16/32

5 Seats Managed Per Engineer (internal HD/Outsourced HD) 149/189

6 Service Margins (Pre-Labor) 75.8%

7 Service Margins (Post-Labor) 48%

8 Hardware/Software Margin 26.6%

9 Revenue Growth 23.7%

10 Admin Expense % 18%

11 Sales Expense % 9%

12 Operating Income % 11.5%

Sales & Marketing

TYPICAL MSP

• The typical MSP has limited sales and marketing capability

• Sales expense is low, and sales capabilities are weak

• Very little lead generation

• Reliance on referrals, and word of mouth, for growth

TYPICAL OE DEALER

• Sizeable customer base looks good on paper

• The performance in mining the base and cross selling services is “average to weak”

• List development, list management, marketing, and predictive analytics needed

MSP Critical Success Factors Target1 Average Seats Per Contract 20.2

2 Revenue Per Seat 74.40

3 Number of Contracts 65

4 Revenue Mix (MRR/Project & Hourly/HW & SW) 52/16/32

5 Seats Managed Per Engineer (internal HD/Outsourced HD) 149/189

6 Service Margins (Pre-Labor) 75.8%

7 Service Margins (Post-Labor) 48%

8 Hardware/Software Margin 26.6%

9 Revenue Growth 23.7%

10 Admin Expense % 18%

11 Sales Expense % 9%

12 Operating Income % 11.5%

Recommendations

• Focus attention to your CRM and your customer base

• Determine Ideal Client Profile for your products and services

• Segment your Base

• Build consulting capabilities

• Build vertical market capabilities

• Manage to the metrics