Magazine Article | July 18, 2013

Keep Your Managed Services Customers From Reverting To Break-Fix

By The Business Solutions Network

This MSP’s four-step approach to selling managed services created a 98% customer retention rate and 40% sales revenue growth last year.

It’s not uncommon for some MSPs (managed services providers) to do such a good job at fixing a customer’s network and other IT issues that things stop breaking like they used to. The only problem with that scenario is that eventually the customer starts thinking, “Now that everything is working so well, why do I need to keep paying you a fee each month?” Some MSPs attempt to prevent — or at least delay — this reversion back to break-fix by locking clients into twoto three-year contracts. This approach may work on a customer once, but you can probably guess what the renewal rate is on a customer who feels they’ve been paying too much to your company for the past two years. BlueWave Computing is an MSP that takes a different approach to selling managed services, following four steps that are unconventional compared with how its counterparts run their businesses. Then again, operating a 150+ employee company that’s been on Inc.’s Top 5000 list of the fastest-growing companies in the United States for the last five years in a row isn’t exactly conventional either. MSPs of all sizes could learn a thing or two from BlueWave’s approach to selling managed services.

Step 1: Hire IT Extroverts
Although it’s become a cliché for businesses to attribute their success to the quality of their employees, the reality is that many struggling companies really can trace some portion of their failure to poor leadership or, in the words of author Jim Collins, “Not having the right people on the bus.” BlueWave Computing takes this belief to heart, which is evidenced by its hiring processes. “We discovered years ago that paying outside agency fees of nearly 20% of a new hire’s salary just wasn’t working for us,” recalls Sean Vojtasko, executive VP at BlueWave. “So, we hired a full-time recruiter and started using social media tools like LinkedIn Recruiter and attending college fairs to find new employees.” The MSP also developed an up-front screening process to help its recruiter and managers use their time more wisely. All applicants complete a 20-question technical screening test, which is usually administered during a 15-minute phone interview before the candidate is considered for an in-person interview. The test consists of a combination of multiple choice and fill-in-the-blank questions, which are designed to test an applicant’s technical skills (e.g. What are the minimum number of hard drives in a RAID 5 array?) and logical faculties (e.g. Users are complaining Outlook is running slow. Here are the details of the server and network. What steps would you take to resolve this problem?). “Based on a person’s test score, we can get a good starting point regarding their skillset and experience,” he says. If a candidate’s skill level is a match for an available position, the MSP will bring the candidate in for a more in-depth technical assessment as well as to get a feel for the candidate’s personality. “IT people can range from extreme introverts who work best behind closed doors away from people to extroverts with a combination of IT and customer service skills,” says Vojtasko. “The vast majority of our hires are those in the latter category who have a good balance of IT and customer service skills.” In fact, one of the things Vojtasko emphasizes to job candidates is that BlueWave Computing is not an IT company; rather, it’s a customer service company that just happens to be good at IT. Besides the fact that BlueWave requires all prospective hires to have a fouryear degree in computer science or a related field, the company hires employees ranging from no experience (i.e. just out of college) to 20+ years. “Candidates go through several interviews with our management team to ensure we’re hiring someone who’s the right fit for our culture,” says Vojtasko. Once a new person comes on board, the MSP makes a significant investment in training that person. And not all of the training takes place in a conventional classroom. “At least a few times a quarter, we plan outings with our employees that include team bonding activities such as whitewater rafting. On a daily basis, we’ll have multiple engineers who need to work together solving a client’s problem, so it’s important that team members have a strong camaraderie with one another.”

BlueWave also subscribes to Skillsoft Online Learning, which has more than 5,000 computer training and certification courses available ranging from industry best practices training, such as ITIL (Information Technology Infrastructure Library) and Six Sigma, to vendor-specific training, such as VMware virtualization certification. “We also provide employees with industry-specific training, such as HIPAA compliance education,” says Vojtasko.

Since Vojtasko started with BlueWave nearly three years ago, the company has hired more than 90 new employees, including 30 new hires last year. This year, the MSP already has hired 18 new employees and projects to hire 17 more by year’s end.

Step #2: Say ‘No’ To Tiered Support
One of the mainstays within the managed services space is the tiered support system, which works something like this: A tier-one (i.e. entry level) technician answers the help desk phone and attempts to diagnose a customer’s IT problem. If that person is unable to resolve the situation, the call is transferred to a tier-two technician. If the tier-two support person can’t resolve the problem, the call is transferred to the most experienced tech — the tier-three support person. “We did away with the tiered support model because we felt it was flawed in two ways,” says Vojtasko. “First, it leaves customers feeling like they’ve been given the runaround. And second, it makes it more difficult for entry-level engineers to gain experience.”

At BlueWave, any technician can answer a customer support call, and the only rule is that the person has 15 minutes to either solve the problem themselves or help the customer come up with a plan. “What often happens is that if a junior-level technician fields a call, they will bring in a more senior-level technician to help solve the customer’s problem,” says Vojtasko. “So, just like the tiered model, you still have multiple people working on a problem, but now they’re working together, which means that the customer doesn’t have to explain the same problem over and over, and it gives the less-experienced technician an opportunity to receive on-the-job training from the senior technician.”

So, how well does this approach to service work? The company’s average resolution time on a help desk problem is less than 9 minutes. “We find that, when we compare a new employee candidate’s skillset with one of our employees with similar experience, our employee will more often have a much broader skillset,” says Vojtasko.

Step 3: Gauge Success With Customer Satisfaction
Unlike many MSPs that use traditional sales-driven metrics to judge their success (e.g. profitability, cost per sale, sales revenue), BlueWave Computing believes these metrics are secondary to customer satisfaction. After every ticket item it closes, the MSP sends customers a short survey (via email) that asks the customer to rate the engineer who completed the task on a scale from one to five in categories such as skill, timeliness, and courtesy. There is also an opportunity for customers to provide additional feedback if they want to. The ticket results are copied to the engineer; their manager; BlueWave’s quality assurance analyst and training manager; BlueWave’s CEO, Dr. Steven Vicinanza; and to Vojtasko, who says that most results are either straight fives or no survey is returned. “If we receive a negative response, one of the managers follows up with the customer to find out if there was a problem. If it turns out the customer wasn’t satisfied, and their complaint is justified, we credit their account for the price of the ticket, and we use the incident as a coaching opportunity for the engineer,” he says. “It’s a rare occurrence for someone to get coached and not correct the problem.”

Over the last two years, the company has averaged a score of 4.98 on its customer satisfaction surveys. “Our engineers have a performance review each quarter, which takes into account their score on quality assessment surveys, number of ticket reopens, client credits, and overall productivity,” says Vojtasko.

Subscribe to Business Solutions magazine Step 4: Ditch Your 3-Year Managed Services Contract
Another standard practice within managed services is to lock customers into long-term contracts, similar to how telcos do with cell phone plans, including financial penalties for early contract termination. BlueWave Computing once again does things differently and offers what has to be the most unconventional of all its practices: monthly contracts. As mentioned earlier, one of the biggest fears MSPs have is that a managed services customer will start questioning the value of paying monthly for “something that doesn’t seem broken” and will want to revert back to being a break-fix customer. BlueWave’s approach is to be transparent with customers and to embrace the fact that a customer’s IT needs are going to change dramatically within the first six months of signing a managed services contract. “After our initial assessment of the customer’s IT environment [e.g. computers, servers, firewalls], we present them with a recommended monthly budget they should be spending to achieve their IT goals,” says Vojtasko. “What we usually see is that they go over budget the first three months, they hit the budget the next three months after that, and from the sixth month on they start going under budget.” During quarterly business review meetings with clients, BlueWave account managers tell customers who are consistently running under budget about additional services they could allocate to their surplus budget. BlueWave allows budget surpluses to accumulate for up to three months, similar to how a telco may allow unused minutes to roll over to the next month. “Some customers choose to apply their unused budget toward special projects such as a server replacement, a new phone system, or cloud services,” says Vojtasko. “If a customer is consistently under budget, we have a frank discussion and tell them we need to either figure out an extra service we can provide them, or we’re going to need to cut back their monthly payment.”

BlueWave finds that not only does this approach force it to constantly look for ways to find new services to offer its customers, it also goes a long way to boosting customer satisfaction. “It all boils down to gaining trust with new customers early on,” says Vojtasko. “Once they learn that we’re not going to let them overspend or make bad IT decisions, we become their trusted advisor.” How does BlueWave know that it’s achieved this coveted status? Measurable results. Twice a year, the MSP conducts a net promoter survey (NPS), asking its customers one question: “How likely on a scale from 0 to 10 are you to recommend BlueWave Computing to a friend or colleague?” IT service providers as a whole average around 37%, according to Vojtasko. “BlueWave averages in the 70% range, comparable to Apple’s NPS score,” he says.

When you break apart some of BlueWave Computing’s business practices, they may seem like recipes for failure, but the metrics prove otherwise. The MSP has a 98% customer retention rate, and it’s adding 30+ new employees each year while achieving 35%+ annual revenue gains and 40%+ profit margins on its managed services sales. Additionally, BlueWave’s customers are nearly twice as likely to refer BlueWave to a friend or colleague compared with the average MSP. Also noteworthy is the fact that the Atlanta Journal Constitution (Atlanta newspaper) ranked BlueWave Computing among Atlanta’s top places to work for two of the past three years. How many MSPs who follow more conventional practices can cite even half of BlueWave’s credentials?