Maximizing IT Service Delivery Profits During Economic Downturns

What does the current economic downturn mean to us as I.T. service providers? Businesses traditionally are much more careful in their spending during times of economic uncertainty, and I.T. projects are normally among the first batch of initiatives to be placed on hold, as clients and prospects tighten their belts to weather the storm. It's important for us to identify this reality and shape our deliverables, message and value proposition accordingly so that we can take advantage of these opportunities.

Did that last sentence confuse you? If it did, let me explain my position. If we, as I.T. service providers, shape our message, deliverables and pricing in such a way that we are seen as a cost-saving solution to clients and prospects that can mitigate their business risks and increase their efficiencies and productivity; and therefore net profits, we have a really good shot at not only weathering economic downturns ourselves, but actually growing our businesses during these periods. Sound crazy? Let's dive a bit deeper...

As a reactive I.T. service provider, we are most profitable when our clients are experiencing the most pain. If there is an outage or disaster event, we react to and remediate the problem, then bill our client our emergency response rate. Our clients are never prepared to pay for these reactive emergencies, so the negative impact to their cash flow and operations is very high. This is the reason many clients and prospects have a less than positive opinion of I.T. maintenance costs and reactive providers in general.

As a proactive I.T. service provider; however, our relationship with clients is the complete opposite, as we are most profitable when our clients are experiencing the least pain. The better we proactively manage and maintain their environments, the higher their efficiencies, productivity and profits. The more we integrate tools and technology, and utilize processes and procedures to remotely monitor and manage our client environments, the higher our staff's utilization becomes, increasing our net profits. So in this example, our business goals are in perfect alignment with our clients' - we are the most profitable when they are the most profitable.

So how can we shape our deliverables, message and value proposition to take advantage of the current economic downturn, and counteract its impact on the spending behavior of business owners who tend to tighten their belts during periods of economic uncertainty, and seek cost-cutting measures in order to "hunker down" until the storm blows over?

Well, in extreme conditions, these same business owners also look to staff reductions and outsourcing labor-intensive business functions such as HR, Payroll and IT Services, which is an excellent opportunity for the well-prepared I.T. service provider to capitalize upon.

With the proper messaging and an effective marketing and sales process, Managed Services Providers will be the most successful at winning business and increased profits in 2009 than system builders, reactive break-fix and professional services providers.

The second most profitable group will be professional services providers, followed by the reactive break-fix group, with system builders bringing up the rear. Let's break down the reasons why, and what can be done to improve the outlook of each group:

System Builders

Of the four types of service providers mentioned (system builders, reactive break-fix, professional service providers and MSPs), the system builder's profit margins are generally the lowest, and worsening this initial disadvantage is the reality that orders tend to slow drastically during economic downturns. In order to increase revenues, system builders should look to diversify their deliverables portfolio with services, either by partnering with other providers or vendors to deliver services to their clients, or by building the capability to deliver these services themselves.

An attractive option for system builders is to partner with providers looking to deliver Hardware as a Service (HaaS), and work with a financing resource to underwrite this offering, while they provide the hardware and warranty service component of the deliverable, increasing their revenue opportunities.

Reactive Break-Fix Services Providers

This group's profit margins may be higher than the system builder's, but the challenge will be in maintaining and growing revenues while clients and prospects are attempting to cut costs. Existing clients may not be quite so willing to authorize a billable service call, choosing instead to attempt to troubleshoot matters themselves, and in many cases exacerbating the issue and creating an even more expensive problem to solve. This doesn't do much to engender goodwill with the reactive break-fix service provider, who must now attempt to collect on an invoice that has become a high, unexpected expense for their client.

In terms of winning new business, the reactive break-fix service provider has their work cut out for them, as business owners are less likely to switch vendors for critical services when times are tight, instead opting to "ride it out" with existing relationships, especially when there is not a compelling differentiator to tip the decision in the new provider's favor. In these situations, many reactive break-fix service providers resort to cutting their rates in order to win new business, further eating away at their profits, and creating a service relationship that becomes increasingly difficult to sustain profitably.

This group of service providers must do everything they can to cut internal costs, and look to transition reactive support delivery and block-of-time agreements to long-term annuity-based service agreements. In addition, the capability to deliver services remotely must be seriously considered in order to reduce truck rolls and increase staff utilization. The discipline of implementing yearly service rate increases; even if only in single-digit percentages, will go a long way towards maintaining and increasing profits over time.

Professional Services Providers

When times are good, delivery of professional services is an ideal way to win new client business, and create a consistently sustainable revenue stream as clients' business needs can be effectively identified and properly managed through quarterly business reviews and yearly technology road-mapping activities, allowing for budgeting and forecasting of regular infrastructure and service upgrades over time.

But, as mentioned earlier, unless critical to a business' operation or profitability, I.T. projects are among the first to be put on hold during economic downturns, so the professional service provider may find themselves resorting to cost-cutting measures themselves in order to weather the uncertain economic climate, just like the clients they serve.

Among each of the previous groups, the professional service provider is perhaps the most easily adaptable to delivering proactive services through long-term annuity-based agreements, as they are already effective project managers accustomed to adhering to strict process and procedure to insure project profitability. In this example, options include building the capability to deliver long-term services governed by SLAs themselves, or partnering with other partners or vendors to deliver these services to their existing, as well as new clients.

Managed Services Providers

Of all of the previous groups mentioned, the MSP enjoys the highest profit potential of all, based on their ability to illustrate real cost savings to their clients and prospects. As business owners look to reduce their costs in 2009, the ability to outsource the management of their I.T. infrastructure for a fraction of the cost of maintaining their own internal staff for this purpose is very attractive.

With the right tools and technology, processes and procedures, the MSP will benefit from the highest margins for their services as well. Implementing and extending the capabilities of their existing technologies gives the MSP the competitive advantage to increase profits in 2009 and beyond. Maximizing the remote management and remediation capabilities of the MSP's existing tools and technology reduces truck rolls and increases the MSP's efficiency and utilization significantly, netting additional profits to their bottom line.

Strategies for all Service Groups

The key to maintaining and growing profits is to target the right clients. Generally, the more dependent upon technology a client is, the easier it is to sell them solutions that increase their efficiencies and productivity and mitigate business pain and risk. So we are looking for heavily technology-dependent clients and verticals as well as technology-strategic clients. Technology-strategic clients are those that see their IT expenditures as strategic investments that help them achieve their business goals. These are the best clients to have, and economic downturns will have a lesser effect on their I.T. purchasing decisions than it will on other clients. In fact, in many cases the opposite may be true, as these clients see these downturns as opportunities to gain a competitive advantage in their markets by investing in their technology and infrastructure.

Messaging and Marketing

True for all service provider groups, effective messaging and marketing is the key to increasing client opportunities, but what messaging is the most effective during uncertain economic periods? Messaging that conveys the following concepts seem to work well:

·         Cost savings

·         Improved efficiency/productivity

·         Pain reduction

·         Risk mitigation

 

A consistent marketing process is crucial to maintaining a consistent sales funnel of opportunities, and increasing marketing activities over historical levels is recommended in 2009. Look to vendor co-sponsoring opportunities and leverage marketing development funds wherever possible in order to defray marketing costs. Include multi-vendor participation for local events where your message can be delivered to large groups, instead of individuals.

Final Thoughts

In order to maximize service revenues during uncertain economic times:

·         Reduce internal costs wherever possible

·         Look to tools and technology, process and procedure to increase efficiencies and utilization

·         Partner with other providers and vendors to deliver additional valuable services to clients

·         Target technology-strategic and technology-dependent clients and verticals

·         Build deep client relationships as your clients' Trusted Advisor and outsourced CIO to ward off competitive threats

·         Leverage vendors and distributors' services and support offerings, as well as other benefits such as facilities tours and product and solution demos and Marketing Development Funds

·         If your client base averages less than 26 users, move up to the 26-100 user space

·         Add financing as an option to each and every Proposal

Erick Simpson
Vice President, MSP University
Join MSP University FREE for all things Managed Services
www.mspu.us

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The Top 10 Businesses to Be in During a Recession - Real World Recession Strategies

Top Ten Businesses in a Bad Economy

According to One Coach the following businesses tend to succeed during a recession:

1. Business Coaching

2. Business Networking

3. Alternative Fuels

4. Environmental Services

5. Health Care

6. Nail Salons

7. Discount Retailers

8. Luxury Products

9. IT and Technology Services

10. Credit and Debt Management

It is debatable whether Nail Salons and Luxury products truly do succeed in a recession. Item #9 in my view should be ranked higher in the list as businesses utilize technology to become more efficient and profitable during tight, recessionary periods. #3 and 4 are great forward looking businesses, but they carry a premium and subject to positive government policy and regulations. Just know you need to be prepared for the long haul with Alternative Fuels and Environmental Services as demand will ebb and flow directly associated to the whims of the White House and Congress. In addition, during down economies, you will need to aggressively sell how much these businesses can save consumers and businesses money in a significant, quantifiable way, since the offering will be products and services that carry a price premium. Glad to see my business at the top of the list! Businesses find out they need a business consultant and coach during downtimes-the smart ones know this before they get in trouble!

Real World Business Recession Tactics and Strategies

Some areas which Sara Wilson keyed on in the December '08 Entrepreneur Magazine Article, "Trend: Economy", which makes a lot of sense in this Economy:

1. A Business Idea that is Working right now: CouponMom

a) Stephanie Nelson started a website that teaches consumers how to save money buying groceries using coupons.

b) 2008 Revenue has doubled and the site had over 1 million unique users in July.

2. Local Scope: Due to financial pressures and an uncertain economic outlook, consumers are spending more time at home and closer to home.

a) Consumers are frequenting local restaurants and entertainment establishments, which are more low key and less expensive.

b) Instead of traveling to Disneyworld, families are utilizing "staycations", enjoying local area parks, lakes and beaches.

3. Green Business: Organics are and have been exploding in growth and the outlook is very good. People want to eat healthy and feed their family healthy food even when things are tight financially. Green conservation is another growing business niche.

4. Web Business: Why spend large start up dollars on a brick and mortar Business, when you can run the same or similar business from home, utilizing the internet?

a) Web businesses are very competitive and the learning curve is significant if you aren't familiar with web marketing techniques.

Sara Wilson had another good article, "How are Franchisees Dealing?" in the January '09 Entrepreneur Magazine that interviewed four different franchise business owners on how they were dealing with obstacles during this current economic slump:

1. Floyd's 99 Barbershop: The franchisee, Jay Palmer, couldn't find a loan for a new store. He tried using his home and his parent's home as collateral and no luck with banks, including trying to obtain an SBA or Corporate loan.

a. The Solution: Mr. Palmer found a personal investor (Angel Investor). The investor came into the shop for a shave and a haircut when Mr. Palmer wasn't around so he could get a good feel for the business. He ended up investing $150,000 after seeing a steady stream of happy customers and happy, energetic employees. This was a great move on Mr. Palmer's part, using a track record of success and clearly showing a sharp investor the real deal behind the potential success of his future business opportunity: great service, great product, happy customers and content, energetic employees. In just one site visit and the positive experience with the business' services, the investor was ready to supply the needed capital even after multiple bank turn-downs.

2. Kitchen Solvers: Franchisees, Carrie and John Borden Kircher, customer niche based changed. Their customer market became price orientated, and the business offers premium kitchen and bath remodeling. Leads dropped 19% and sales are down 25% over the last two years.

a. The Solution: Their solution is rebrand their vans, get new signs; increase letters to past customers; leave a gift with a customer after a job is complete; and working with their franchiser on the operational side of the business. Ok, as a Business Consultant I am going to give my two cents on the Borden Kircher's proposed solutions:

i. Rebranding Vans and New Signage: In my experienced opinion, this is a waste of money. I would instead spend this money on a new Marketing Plan which concentrates on two areas:

a) How to target higher wealth clients in the market area.

b) How to sell price based customers on why premium services and products can save them money in the long run. Once the new Marketing Strategies bring in profits, then it is a good time to upgrade signs and re-brand with those growth dollars.

ii. Increase Letters to past clients: Ok, but what is the purpose of a letter? The time to ask for referrals is the day the job is completed. When the client is happy with their new Kitchen or Bath. A newsletter with examples of completed jobs and customer testimonials, along with a preferred customer discount coupon, may be more effective in obtaining an add-on sale with an existing customer. A newsletter can also be a forum to introduce other services to current customers which they may not be aware, such as, having an article on the Design Services that Kitchen Solvers offers. The most cost effective, normally highest bang for your marketing buck, are continuing sales to existing customers.

iii. Leaving a Gift Basket with a Customer Post Job Completion: The Borden Kircher's are looking to implement better customer service and they believe customers are looking for the "Wow" factor. Leaving a gift is not customer service, and the wow factor should be as a result of a beautifully completed job. A Gift Basket will get neither. Customer Service starts at the Sales and Design Stage and continues throughout the job. The business owners showing up on the job to check on things and talk with the client is good customer service. Meeting with the customer in person after a job is completed to go over everything and ensure the client is happy is good customer service (and a great time to drop off the latest company newsletter and ask for several referrals). Customer Service is showing up on the job when the client is unhappy with the contractor's work. This type of highly motivated customer service will create the Wow factor for Kitchen Solvers, along with a quality, premium, beautiful look in the finished kitchen or bathroom, leaving a lasting impression.

iv. Work on the Operational Side with the Franchisor: This is one of the fantastic advantages a Franchisee can leverage: utilizing the experience and resources of the Franchisor. Some Operational Tips I would make as a Business Consultant:

a) Analyze product costs and see where you can cut costs yet still retain a premium, high-end image with quality products and value added results.

b) Work on a Supplier Business Plan which strengthens your relationship with your suppliers, tapping their assistance, experience, resources and expertise to bring better product offerings to your customers.

c) As previously stated re-work the Marketing Plan, along with making the resulting key changes in the Strategic Plan to better anticipate future market trends and adapt operations more proactively to those indicating trends.

d) Examine the Operational Aspects of the Business Plan to see how you can better bridge the gap between the design sale stage and the install. Customers are more prone to pay a premium for a smooth, effective transition from concept and design to install and completion.

e) Incorporate add-on selling into your Strategic Sales Plan for existing customers. A happy customer is more apt to stick with the same company to continue remodeling, so be sure to have a built in process which engages customers and shows them other remodels you can accomplish for them. Add-on selling takes very little marketing cost for a big return and ties in well with solid customer service.

f) Have the Franchisor witness some sales and installs to see if areas for improvements can be identified. Incorporate these improvements into your Business Plan.

b. My Best Advice: Find a way to sell a premium product and service to higher wealth clientele and offer a product/ service which has a premium look and finish, yet appeals to price conscious customers. Search for innovative suppliers who can help accomplish this mix. Follow-up this new business model with strong customer service throughout all the sale and install stages. Concentrate on a post-completion walk-through which asks for referrals and start the add-on sale process. Follow up with a monthly newsletter which contains add-on ideas and offers a loyal customer discount. The Borken Kircher's have a lot of challenges in this economy, and as they said, "you can't just sit around waiting for people to call." Use this rough patch as a learning experience in staying ahead of changing market trends, analyzing costs and making new plans for future success. A premium product + great customer service + a quality install + great value = a viable business model in any economy. Just don't wait two years to make changes.

3. The Melting Pot Restaurant: The challenge Franchisee Michael Frampton was facing during the Real Estate Crash in California was establishing the restaurant in a new shopping center when 10 other centers in the area were all opening at the same time. On top of this significant challenge, property taxes went up from $500 a month to $2,500, which meant $2000 a month cost comes straight off the bottom-line, never being budgeted for.

a. Solutions: Mr. Frampton shows why he is going to be a successful business owner. Clear steps and strategies to overcome the current situation:

i. Loyalty Cards: This is a fantastic move. Appreciate your regular customers during the hard times, and they will keep your doors open.

ii. Mass Mailing: Targeted within a 10 mile radius as there are so many competing restaurants in the immediate area. Targeted mailing is measurable, which is key during tough times.

iii. Analyze where you are spending money and the areas which can be controlled (not necessarily cut): Mr. Frampton actually saved $500 a month in focusing on linen costs for towels used to clean the restaurant. He also analyzed energy cost: when they turn on equipment and the length of time it's used. A third major cost area for restaurants is staffing, which Frampton cost analyzed as well.

iv. New Business Opportunity: He started opening for lunch on Sundays. Why? Probably because customers come after church with their families to enjoy an upscale meal, as do the late weekend risers searching for a good brunch close to home. One of the best analyses a restaurant can perform is looking at the average customer flow, food sales, alcohol sales and costs for each day of the week it is open to determine what days are best to be open and the reasons why. Armed with that information, you can adjust staff schedules, open hours and food prep costs much more strategically. Mr. Frampton apparently thinks the added costs of being open for lunch on Sunday is worth it, based on good cost analysis.

4. EmbroidMe: Wendy and Todd Diskin own a franchise that specializes in promotional solutions for businesses, which includes decorating apparel and screen printing. Their challenge has been rising costs from their suppliers. They have experienced a 5% increase in the Cost of Goods over the last year.

a. Solutions:

i. Competitive Pricing vs. Solution Based: The custom product industry is price competitive. With rising costs, the Diskin's have provided a more solution based approach so the buying decision isn't just made on the quote. For instance, if one of their customers is trying to increase readership, they figure out how EmbroidMe products or services can help the client achieve that goal and come up with a program to do so. Then the decision becomes one of "risk and reward and ROI instead of price..." Selling solutions alongside your product and service offerings is a way you can separate your company from the competition and still retain premium pricing in a price based market.

ii. Continuous Marketing Software: This program sends letters and emails so the Diskin's can "stay in front of their customers on a regular basis without a ton of effort...." This software program keeps the company engaged with customers, giving EmbroidMe first opportunity to make another value added sale or track how customer market trends may be changing.

iii. Vendor Relations: Leveraging a strong advantage franchises have, EmbroidMe Corporate negotiates the best pricing and strategic relationships with suppliers for their franchises. This is a huge advantage as it is a time consuming task and volume pricing from a Global Corporate level is much more advantageous than negotiating on your own as a single business unit. So it is apparent that although COGs has risen, EmbroidMe is still very competitive and successful, even in a recession.

Conclusion:

This article used real world examples and combined it with the business experience of a 20 year veteran Business Consultant to provide you with real world examples and strategies to use in order to start, run or adjust a new or existing business in a struggling economy. In a recent article I discussed Recession Survival Planning, and how it is a must and utilizes good Strategic Planning, Diversification Techniques, Contingency Planning and Cost Management. In another article I discussed various Recession Finance Techniques for your business which are particularly good during a Recession, which include Networking, Supplier Finance, Lease Finance and Local Business Loans. To conclude in this article, I identified certain types of businesses which excel in an Economic Downturn and why they are successful. My best advice for starting or operating a business during Recessionary times is as follows:

1. This Recession will have an impact for at least 3 years. So keep that in mind when planning for your business.

2. Track record, Experience, Niche Market Identification and Cash Flow are keys in raising funds for your business.

3. Solid, Comprehensive Business Planning, along with realistic, accurate Market Planning and Financial Forecasts are very critical during challenging economic times. An effective Strategic Plan is integrally important in bridging the gap between a Marketing Strategy and Realistic Financial Forecasting.

4. Out of the box thinking: For Brick and Mortar Companies, key on strong local areas and/or utilize the web to efficiently bring a product or service to the market.

5. Price Competitiveness becomes less important if you sell value-added business solutions to your customers and have tight controls on costs.

Frank Goley is a business consultant and business coach, and he works for ABC Business Consulting. He is an expert in developing, writing and implementing business plans, business funding plans, marketing plans, strategic plans and business turnaround plans. Frank is author of The Comprehensive Business Plan Workbook - A Step by Step Guide to Effective Business Planning, and he writes the Business Success Strategies Blog.

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How to Buy a Business During a Recession

Despite an economic downturn, poor sales, extensive unemployment and a banking emergency, this actually may be an excellent time to think about buying a business. The reason is really very simple: it's currently a buyer's market, which means the time is perfect for buying a business.

Buy business trends are on the upswing, with sellers relaxing their purchase business terms because there are fewer qualified buyers, third-party financing becoming near impossible, and opportunities to negotiate a really good deal for a business for sale aplenty.

However, the receptive climate for purchasing a business doesn't mean that you should advance without having key buy business essentials in place. It's very easy for enthusiastic, yet inexperienced buyers, to pay too much for a business for sale that has no chance for survival, even in good times.

First and foremost, it's important to know the purchase business climate before even considering whether to own a business. Currently, the buying a business market is being crippled by the economy and there is a lack of small business lending. Consumer confidence that the economy will turn around anytime soon is very low and many businesses are seeing multi-month declines. For these reasons, it's necessary when considering a business for sale to negotiate a deal that will protect you now and in the future if the economy doesn't improve in the near-term.

Before deciding whether to own a business during these tumultuous times, there are six basic buy business steps to follow. By following smart purchase business philosophies, you will position your new business to succeed regardless of the economic climate.

Here is a look at the six important steps to buying a business:

1. Request Several Previous 12-Month Profit & Loss Statements. Normally, a seller would provide year-end financial statements, any interim statements and tax returns for buy business inquiries. But considering the current economic conditions, you need to see the business for sale financials from the current date and back to the past 12 months, as well as financials from the prior 12 months and the 12-month period before that. This will give you a better picture of the overall health of the business for sale.

2. Be On The Lookout For Hidden Expense Cuts. With a business for sale, many sellers try to make the company look better by making cuts to enhance profits. When reviewing the financials, look at expenses for marketing, advertising and payroll by doing an item-by-item comparison over several periods and comparing the number to sales or income. Furthermore, a review of the balance sheet will show whether inventory has been cut or if shareholders or owners contributed their own money to improve the company's bottom line.

3. Review The Customer Base. When purchasing a business, a thorough understanding of the current customer base is crucial. Although a business may be performing well, sales might show problems. If you decide to buy a business where sales are declining, make sure that you modify the purchase price accordingly and establish a new sales and marketing plan.

4. Negotiate Earnouts. These are purchase business terms based on performance. Linked to the purchase price, earnouts are assurances that the business for sale can survive in the current economic climate and grow in the near future. Once you've completed a thorough analysis of the books, set an asking price that's directly related to the present performance of the business and its sustainability for possible future declines. It is critical to negotiate a performance-based deal, especially if the purchase business evaluation indicates a loss or no recent stability or growth. With an earnout structure, the seller receives the balance of the purchase price when certain targets are met in the future. Earnouts can be based on profitability, sales, or retention of customers.

5. Insist on Seller Financing. As far as lenders are concerned, this is not a buy business climate. So chances of you receiving financing for buying a business are slim, especially if you have little collateral or no business ownership experience. As such, it's important that the seller finance the entire purchase business price or a large portion of it.

6. Don't Be Intimidated By Business Brokers. They represent the seller, so it's their job to present a positive buy business environment. As such, you need to take control of the deal.

When buying a business, it is essential to obtain all the key financial and performance data related to the business for sale. This information is your bargaining tool when meeting with the seller. You can own a business and be successful at it if you make well informed purchase business deals with the seller to limit your risk. Despite the present business climate, it's exhilarating to own a business and there isn't anything that should get in your way of realizing your dream.

Richard Parker is the President and founder of the Diomo Corporation - The Business Buyer Resource Center. His inspiring materials, seminars and consulting have assisted thousands of business buyers with achieving their life long dream of buying a business. Want to learn more about effective business buying strategies that actually work, then look no further than http://www.diomo.com.

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