Scaling Up To Be an MSP

Larry Shulman, president of LMS Technical Services in Dix Hills, N.Y., discovered something very interesting when he transitioned his business from a traditional VAR to a managed service provider: the cost of delivering services didn't scale. Here's the wall he ran into: The typical $80,000-a-year engineer that worked well in his solution provider business was now being expected to sit in front of a console monitoring network activity reports and running down mind-numbing alerts. As his service-provider business grew, he would have to add more people to sit in a network operating center to perform the same rote tasks.

Lawrence M. Walsh is editor of VARBusiness and GovernmentVAR. He also writes the Tidal Waves blog.

Ah, eureka! Just hire lower-cost admins to man the NOC. Shulman thought of that, and he realized that it wouldn't work. Finding kids who were willing to take a low-paying job that carries big responsibility and stay on for any length of time in a competitive, high-priced market like Long Island's was next to impossible.

After trying out managed service tools from N-able and Level Platforms, Shulman signed up with Zenith Infotech, an India-based company that provides back-end managed service infrastructures. Zenith handles ongoing monitoring with low-cost labor, and Shulman responds to the alerts locally.

"When people ask me what's the difference between having a NOC here and having it in India, I say '25 milliseconds,'" Shulman says.

The partnership with Zenith gives Shulman the ability to scale his business without the massive infrastructure investments that stall many solution providers' efforts to become managed service providers.

Scaling is just one lesson Shulman has learned through his metamorphosis. The larger lesson is about business. He's no shrinking violet and readily voices his opinions. One that he vehemently pronounces is the need for solution providers to become better businesspeople.

"Technology is a given. The real question is how I differentiate and bring more value to my clients. What's critical is taking a low-cost model you can bring to your customers [while still making money]," he says. "This is all a marketing-sales game; if you don't take the plunge, you're dead."

Shulman, for example, dove headfirst into the managed service market by "firing" any existing customer that wouldn't come along for the ride. Many would consider that suicide--to alienate paying customers before you've built a replacement revenue stream--but Shulman's rationale was simple: If they didn't see the value in his service and weren't willing to come along, they would only drain his business of needed resources.

As a managed service company, LMS has doubled its client base and grown annual revenue to more than $3.5 million. Nearly all of its new clients come from referrals. And just to get a sales meeting with LMS costs $1,100. Again, as Shulman explains, if they're not serious about the commitment to managed services, they're not worth his time.

A mistake made by many solution providers, he believes, is that they don't talk to the right people or, for that matter, know the basic elements of a sales call. Too often, solution providers talk to the geeks in the IT department because they all speak the same language. Shulman believes solution providers need to talk with the C-suite--the owners and CEOs--if they want to be successful. Technology isn't an end unto itself; it's a tool for making businesses more efficient and differentiating oneself from the competition.

Between his basic business philosophy and low-cost operation, LMS' Shulman says he's able to deliver better service to his customers. "With every call coming in, we can be proactive and make it a whole sales and marketing pitch," he says. "There's so much more value we can bring to the customer."

I say amen to that.