Episode 194 SPECIAL: Could your MSP survive losing 50% of revenue?

Fresh every Tuesday for MSPs around the world, this is Paul Green’s MSP Marketing Podcast.

Imagine the horror of losing nearly half of your MSP’s revenue. What would happen to your business? How would your staff react and feel? How would you feel? Could you imagine how you’d feel waking up the day after knowing that you were going to lose your whale client who represented 50% of everything that you do? It’s a horrendous scenario. And today, we have a very inspirational interview with someone who not only went through that but has got through it and has rebuilt their business. In fact, today, the business is thriving.

It’s August. Yay! Welcome to Summer and this is the first of our summer specials.

Paul Green’s MSP Marketing Podcast.

Hi, yeah. My name’s Henry Duncombe. I’m the Managing Director of Lanware. We’re a MSP based in the City of London. We work exclusively with clients in the financial services sector. We’ve been operating for 30 years and we employ about 50 staff.

And welcome on the show, Henry. You are one of a whole bunch of very cool people that I met at the SuperOps Super Conference earlier on this year in London, here in the UK. And the second you started telling me about your story, I thought I’ve got to get you on this show, so thank you very much for coming on.

There are two big things that we’re going to talk about today. The first of them is the impact of losing a whale. We’ll define exactly what a whale means. It’s a very big client. We’ll define what that is and what happened to you in your business when you lost your whale. I’m interested in how you managed to recover from that and turn the business around. And then as you said in your intro, you have a super niche, which for you is financial services. I want to explore that, or I should say a super niche, so that everyone everywhere can understand what a niche or a niche is. We’re going to explore exactly what niche you’re in. I’m going to have to stick with niche, aren’t I? What niche you are in, and what drove you to pick a niche? And we’ll get your advice and what you’ve done to help you to dominate a niche.

But all of that is coming up in the next 10, 15 minutes or so. Let’s just start, first of all, just explore a little bit more about Lanware today. You said the business has been going for about 30 years. How long have you yourself been there because you don’t look old enough to have been there 30 years ago?

No, I mean, it was founded in 1993 by an entrepreneur called Connor Cassidy. He identified an opportunity back then to start a London-based IT consultancy just when the internet started to revolutionize business, and for the first five years, it was just Connor and he started to hire a small team. He’d literally gone through the Yellow Pages and phoned up the whole of Central London. And we were providing remote help desk, had a couple of engineers roaming around different client sites, fixing issues.

I joined the business 18 years ago in 2004. I was looking for my next step. I responded to an advert for an engineer role. And being in my twenties, I didn’t do my due diligence. The founder, being a typical entrepreneur, completely oversold it to me, told me the company was much larger than it was and had twice as many clients, but there was something about Lanware and the ideas and the vision that I really bought into. And actually coincidentally, I had a couple of personal contacts that used Lanware for their IT support, so that was the extent of my due diligence at the time, and it was a complete coincidence that they were using Lanware because they really were that small.

But yeah, so then I joined back then as an engineer and it went from there. Back then, it was, as IT was back in the day, it was pretty chaotic. There was none of the processes and tooling and things that we have today, and the support phone would ring constantly, a lot of firefighting, lurching from one problem to the next, limited structure, and everyone did everything. But there was no shortage of strong technical skills and certainly ideas from our founder who had this vision, which really resonated with me, and again, why I joined the business, and that was to create a fully managed service, which would take all of the customers’ infrastructure and servers out of the office, host them in a data center, package them up and virtualize them, and deliver them as this all-encompassing service that they’d pay for on a per-user basis and that service would be accessible to all their users all around the world.

And I’d never understood why the servers were in the office in the first place. Back then, it was quite typical for clients to have their servers hosted in a cupboard in their office with the backup tapes going home in the PA’s handbag if he or she remembered.

So, that was the idea. And what happened next was the journey that we were about to embark on really takes us up to where we are today. We went in and effectively pitched this new idea, this all-encompassing, hosted managed service to a couple of the financial services clients that we had and they knew we hadn’t done it before. They kind of believed in us because we’d been supporting them and they were willing to be the early adopters of that. And so on a bit of a whim, we went about leading with this whole new service. It was a fantastic success. And then from that point, that’s where we started to really think about then focusing on financial services as a niche.

I mean, you’re talking about this amazing concept of moving everything out of the office. When are we talking, what sort of time period are we talking?

2005. It was literally just after I’d arrived was that’s when we went off, and like I say, pitched this new service and had to set about creating relationships with data center providers and beefing up our partnership with other providers.

And was this why you ended up with financial services because they saw the benefits of this and they were able to and willing to invest in it?

Yeah, absolutely. It really resonated with them and our link to financial services really became apparent. They were looking for then a robust, highly available, secure service as possible and they wanted to focus on their core business. So taking the infrastructure out of the office and packaging it up and allowing them to do that, that was really music to their ears. It was there that we realized, look, this is where we should focus. Clearly also, they had bigger budgets, they’re willing to pay for it.

And yeah, there were other little examples I remember back in the day around just simple things like challenges, trying to stop users having admin rights on all their machines, and you know what it’s like. Back in the day, people were just thinking we were being typical awkward IT people trying to take away their admin rights. But the financial services clients completely understood that we were trying to take responsibility for their security and stop them getting hacked and stop them having issues with the regulators. So, we just clicked.

And it was that point that I kind of convinced the founder to go one step further, not just to lead with this all-encompassing, hosted, managed, private cloud as it’s now known today, but to really just to work only within the financial services space, and particularly, small, independent, boutique investment management firms.

Yeah, yeah. I want to come back to that niche, that vertical shortly. Let’s first of all talk about your whale. So first of all, let’s define what a whale is for us, Henry. You tell me what you define a whale as.

Well, a whale is obviously a huge client who make up a significant portion of your revenue essentially. And it’s not unusual. Certainly when you’re starting a business and you don’t have lots and lots of clients, there’s going to be a whale in there from just looking at a percentage basis. No, I mean this was obviously a very large client and I can explain how they arrived and to what size they grew.

They came through a referral. They’re an insurance firm, so within the sweet spot of financial services. Great. They were a new startup and this was over 15 years ago. And they had the backing of a large banking institution with very ambitious growth plans and they had a vision to be one of the first Japanese Lloyd’s of London underwriters. And when we met them, they were about 20 users, but technology was critical to them and their strategy was to develop their own underwriting insurance platform to be able to transact business directly through the Lloyd’s insurance market.And this resulted in a story where they had more IT people than general staff. I remember a time they had 80 software developments.

And the upshot for us was the IT leadership and focus was more on the development of those bespoke systems and not so much the day-to-day keeping the lights on, the desktop support, the infrastructure, and the security. So the timing was great for us, going back to how we got into re-architecting this managed service. And it was great timing because we were developing all that and we were building out our data center capability and all that kind of stuff. So our businesses grew alongside each other and they constantly pushed us to think at a different level and increase our ranges of services to help them grow. They had a dedicated team on site and a lot of the hardware was leased by us too and it drove up the value of the service.

And at its peak, it got to about £4.5 million per annum, which was about half our revenue. So there’s the whale at its absolute peak.

Yeah, that’s not just a whale. That’s like a mega whale, a super whale. But you had a nickname for it, didn’t you?

I think so. I think they were bordering on becoming a megalodon, I think is the pre-historic shark, isn’t it?

Yeah.

But yeah, that’s certainly where they ended up. But at that time, yeah, they were definitely a whale.

Any whale that’s 50% of your revenue is a massive threat when that represents £4.5 million worth of billable revenue. I mean, that’s a business killer. And I guess without going too much into the detail because it must have been a horrendous and very traumatic time that there was a point when that contract came to an end.

Yeah, we had a bit of a perfect storm, sadly. So it wasn’t just that contract coming to end. Sadly our founder, he passed away from cancer. He had been ill for a few years and this left a number of challenges, normal challenges, probate and ownership structure, and it created some uncertainty. And I had kind of stepped up, and this was the best part of 10 years ago, I stepped up at that point in running the business because remember, I joined as an engineer. And the clients were supportive, but we still had a lot of that going on is when things started to go in the wrong direction with the whale client. And we received the news that they were going to merge with a much larger business and it was more of a reverse takeover situation, but it was very clear that our client was the smaller entity and was to be absorbed into the bigger business.

So from the start, we could just see that this was going to be a challenge too great for us, trying to scale up, again to position, to support a combined organization that was potentially 4,000 global users around the world, and especially some of our key stakeholders and relationships, they were leaving the business. It was just too much risk. So that’s where they definitely have gone from being a whale to that megalodon that we were talking about. And the client knew this too. As the integrations with the two companies started, the final scenario for us became clear. And we had had a hell of a ride for 10, 14 years or whatever it was. But the immediate assessment of the impact to our business was serious, it was very serious, the amount of cost-cutting and downsizing we had to do. And there was a lot of fixed commitments in there, such as the data center capacity and so on and so forth, which it painted a very challenging picture.

Were there points where you thought, “I’m not going to be able to do this. There’s no way we’re going to be able to reduce the costs and keep people”? Because that’s the thing, isn’t it? If you’ve ever been in a business that’s had to lose people and lose contracts quickly, it just creates this unbelievable feeling of uncertainty within everyone and you find that the very best people are the first people to leave.

Was there a point where you sat head in hands and thought, “How am I going to do this?”

Of course, of course. Yeah. I mean, there was a lot of things that we learned, and looking back, obviously I’m here today and we’re doing well and how did we turn this around?

Well, first of all, and this is easier said than done, Paul, is we didn’t panic. Yes, the head was in the hands. In most cases, when a client goes in our world as an MSP, you do have an amount of time on your side, and the bigger they are, the more complex their technology, there’s always going to be a significant transition period for them to move away. It gives you an amount of time to make changes and get your head around this.

We had to confront the brutal facts and not kid ourselves as well that this wasn’t going to happen, if that makes sense. It’s quite easy to think perhaps there’s going to be residual opportunity and so on and so forth. You had to plan for the worst case scenario. You couldn’t proceed with any other mindset really, whilst still obviously being confident about the future and where you might end up. So we treated them with the same level of service and professionalism right up until the end, and in turn, created huge amount of long-lasting relationships and referenceability after they exited.

The second thing that we did, which is something many might not do, is we didn’t try and hide the situation from the other clients, and we told them all and we told them early, and that was incredibly difficult to do that. And the response was one I didn’t expect. It was one of support.

Many of these clients are professional investors and we opened up our books to them and they were understandably nervous about our future and how, if we were to fail, how that might impact them, but they started to realize that the business had been run prudently. Obviously, the founder passed away and nobody was taking lots of cash out the business in bonus. And if anything, I started to put money to one side because I knew this ultimately may happen at some point. And so they kind of recognized that and that really helped, I suppose. That really helped build that trust.

And again, I’m always one for trying to find the positives. We look back and the feedback that came out of that exercise with other clients, they pointed out some really painful truths around our business, some of the stuff that you talk around the podcast around understanding your profitability and your pricing and all this good stuff. They pointed a lot of that out and said, look, they were there willing to support us and maybe even go further to a financial safety net, but we had to change a lot of things. And they gave us a lot of free advice around ownership structure, to your point, about key staff, incentivizing key staff with shares so they would not leave the business and all that. So they gave us great advice around that.

And another thing that we’d done prior was get an FD on board, a part-time FD, and we’d been muddling through a little bit with an in-house bookkeeper and a bit of advice from the accountants and that wasn’t appropriate for a business that had grown so quickly of our size and with that key client risk. So when things went south, having an experienced FD on board who had a grip of the numbers, could play out various scenarios, that gave the other clients a huge amount of confidence that whilst the forecast looked difficult, we understood the impact and we could make those difficult decisions with some level of some confidence in that.

And I think the other thing was about everything had to change, particularly in terms of the product because we had become prisoners to our own experiences. We felt the entire market was made up of clients like this with massive budgets, wanted to be on the forefront of technology, and this made us expensive, it made us inflexible. We became too wedded to one enterprise technology stack, which didn’t resonate with the wider market.

A simple example of this was the adoption of Office 365. Because we were so wedded to our data centers, a lot of the team just weren’t on board with the public cloud, and the sad fact is that the market was already shifting back then to the public cloud and Office 365 and we were going out there trying to sell to new prospects. We didn’t have enough experience in it at that time and we had to change all that. And the headline was, we totally re-architected our flagship managed service to be exclusively delivered from 365 and Azure after that as a result of those experiences with that key client and realizing that we’d become kind of prisoners to our own experience with them.

Yeah, this is an astonishing display of leadership, Henry, I have to say. Because the decisions you’ve made, and I appreciate we are hearing a 10-minute version of what was probably two or three difficult years of your life, but I think every single business owner that hears that story can put themselves in that situation.

So most of us wouldn’t be on a turnover of £9 million, which is about $10, $11, $12 million. But even if you multiply that down or divide that down to a factor of 10, if you are sat on a turnover of £900,000, £90,000 and someone takes half of that away, you have to make some very, very difficult decisions. And everything you’ve said there shows to me tremendous leadership. “Dear other clients, this is the problem we are in. This is why we’re in that problem. Here are our books. Here is transparency,” just saying to your staff and showing to your staff that you believed in the future of the business so much that you are willing to give them a little slice of it, that truly is astonishing.

So I’m sure you don’t need to hear it, but congratulations.

Thank you.

And maybe people don’t say it to you very often because you did it and it’s done and the business has picked up and carried on growing from there. But yeah, I think everyone listening right now is giving you a high-five, a welcomed high-five on that one.

Well, cheers. I appreciate that. And as you say, you talked about the team and the staff and you had to be very open and honest with them because in a small business like an MSP, it’s communication. It occurs very quickly and that can be a great asset. It could also be a great liability if you don’t communicate because people make up their own version of events of what you are facing. And I would spend endless time doing company updates and confronting the issue head on, not shying away from it, but whilst at the same time, trying to paint that longer-term future.

And it is really interesting because you talked about when people moved on. One of the things that I found out was that because of some of the good recruitment that we had done, within our ranks, there was a huge amount of potential, if that makes sense. So as some of the more senior people moved on, you had the slightly less experienced ones who were really hungry and wanted to step up and they cared less around things like the private cloud and they wanted to embrace the public cloud, and so they became then our future leaders. And I think the key thing is that, is I’m always trying to recruit on potential as much as the skills they have when you meet them.

I love it. I love it. And there was a great, I’m going to paraphrase what you said there, but something along the lines of if you don’t give people the information, they will fill in the gaps.

Yeah, they’ll fill in the gaps.

Yeah, that in itself is a fantastic people leadership thing.

Okay, let’s finish off looking at your vertical. So right from your early days and from the point you joined the business 18 years ago, you’ve had this vertical, and yours is a nice cash-spending, very focused, highly regulated vertical, which makes it very desirable. Now obviously, you haven’t just sat back on your laurels because the easy thing in a vertical is once you’re in a vertical, you tend to get other businesses in that vertical just finding you, but you can still be very proactive with your marketing and go out looking for business.

So talk us through what you do as a business now to be present in that vertical, to be dominant in it, to be the authority, and ultimately, to get the leads coming in.

Yeah. So I’m going to explain how we ended up in this vertical and the fit that we have for financial services, and I think we sort of fell into it a little bit. And one thing I would say is for others considering going down this road is to proceed a little bit of caution. It’s not a small decision and I think to be truly successful, you have to go all in. There’s no half-measures. It’s tempting to think of financial services as a massive industry, but the addressable market for an MSP, when you are looking at those in those UK, those small boutique firms who are mainly London-based and they’re all very demanding and quite hard to penetrate, and they all want to use a specialist MSP, and that’s part of the attraction, if that makes sense.

And so believe it or not, it goes deeper. There’s like the niche within the niche within the niche. It’s like the super niche. I’ll give you example. There’s not a huge amount of MSPs playing in this space and the barriers to entry are significant. I mean, a lot of the times, you’ll have some of the other competitors, they may have a lot of hedge fund clients and other ones might have a lot of private equity clients. Do you see? So there are actual, within the vertical, there are these sub-niches, if that makes sense. And a prospect will be looking for heavy weighting within your client base of organizations similar to them. So actually, as you get into it, it seems to go deeper and deeper.

So to this day, it’s taken a long time to get into where we are, and I had to turn down a lot of other opportunity outside the vertical, which is not easy.

So I suppose, how do we find new business and market ourselves? We brand everything we do around financial services. I’m sure you’d appreciate. One example of that is our flagship managed service. That’s called Finance Forward 365. And by giving them the product a financial name, you’re offering something that others aren’t. It never ceases to amaze me how other MSPs don’t give their service a name. And it’s a bit easier for us because we can obviously name it within our vertical. That’s just a simple example of how we go to market and brand ourselves.

Clearly, we form close partnerships with other complementary service providers who will focus on the same space as us, whether that be software providers, compliance brokers, legal firms, all the way through to office fit out companies. We hold regular meetups with them, we share intel, we share leads, opportunities, we support each other’s businesses. We like each other’s stuff on social media, if that makes sense. Clearly, we attend all the different events and awards and all that.

We put out content. I mean, you talk about answering the questions from clients, which is fantastic advice. It makes all that content creation process a lot easier because you’re answering those questions anyway. So a recent example might be something that, again, going back to regulation, the regulator’s getting really hot on these financial firms not recording what their staff do over WhatsApp for business purposes, for example. And it’s created a lot of issues so they’re looking for solutions around that. That’s an example, do you see, about something that client’s are really grappling with that you can put out great content around and then position yourself as an industry expert.

Yeah, the other interesting thing we see business, and again, it goes to the niche, it’s just an unusual one, is that a lot of time when our kind of competitors get acquired by non-specialist MSPs or they take private equity backing and they get really aggressive in terms of their targets, they lose that white-glove service and that industry focus. The clients will vote with their feet a little bit and then we pick up a lot of customers there.

We talk about this white-glove service, that’s this term, but I always laugh that it’s when it turns into the rubber glove, you know there’s something wrong. But also, just again, we often try and hire people who have worked with the competition. It’s good to befriend them, maybe have them on your board as a non-exec or who’ve got the connections and all the experience, et cetera and so on and so forth.

But then on the marketing front, Paul, yes, no, we do everything that you preach on your podcast in terms of building up audiences, et cetera, and the email marketing, and LinkedIn is huge for us and newsletters and everything else. And I don’t think that everyone is really dominating on that, like you say, even in our niche.

Yeah, well, I think you could say this with most verticals and there’s two or three MSPs that I’m working with who are utterly dominant in their vertical. I’m not going to name the verticals, but they are. And there’s one guy in particular and he’ll be listening to this and thinking, “Yeah, he’s talking about me.” He literally, he’s only been in the vertical a couple of years, but he walked in and dominated it and that was partly timing, it was partly drive, and it was partly being the right person at the right place at the right time.

There’s another MSP I’m working with in Australia who, again, has dominated the vertical, but most people… It was really interesting what you said earlier about going all in. Most people, they dip their toe into a vertical. And this is how I see it tends to go. You have an MSP that’s got general business, they’ve been going for 10 years, they hear me banging or you, someone banging on about, “Oh, marketing through vertical is easier,” which it is and it is easier to build up momentum and keep the momentum going, but the more you commit to it, the more you get out of it.

And they do, they dip their toe in or they say, “Oh, I’ve got a dentist. We’ll go and get some more dentists,” and they end up with five, 10 dentists and there’s nothing wrong with that at all, using a vertical sat on the side of your general business, but the people who truly dominate their verticals, as you said, they go all i. It is the vertical or nothing. And it is a very scary thing to do because if you marry… We call this marrying a market. If you marry the wrong market, then you have to divorce that market and go and find a new market and that in itself is a three-year set of pain as it is.

Absolutely.

Here we go. Henry, you have been utterly, utterly wonderful. Thank you for sharing something that many MSP owners would hide, which is we lost the whale, and okay, it didn’t kill the business, but it was difficult. So, thank you for that. There’s been some amazing lessons in there and it’s just been a pleasure to have you on. We’ll put your LinkedIn into the show notes for those people that want to connect with you.

And I will give you, I never do this or I will very rarely, give you the final word. If you could give any MSP listening to this one piece of advice, something that perhaps you wish you had known when you took over the business, when was it, 18 years ago, what would that advice be?

It’s something that everyone else has said and one of the reasons I’m on this podcast, it is getting out there into the wider community and really trying to build out those connections and that network and spending time with other MSPs. It’s something that I didn’t do really, and actually, what happened with us being prisoners of our own experience, does that make sense?

It does.

And the whale client, it forced me really just to get out and actually seek help, talk to people. It’s a combination of, I think, getting advice and a bit of therapy as well because running an MSP, you do question whether it’s this hard for everyone. It really is. It’s a very demanding and operational business and so we all need the support that we can get, so go get it.

Coming up next week.

Hi, I’m John Douglas. I’m the Technical Director and Head of Incident Response at First Response. We’re going to be talking about incident response, how MSSPs can support MSPs in the work that you do, the current threat landscape, what cyber attacks look like, and how to deal with ransomware.

Now, this is saying something when a non-tech like me says it, that I found that discussion with John to be absolutely fascinating. He knows so much about cybersecurity and what we need to do to protect people out there, and I’m sure that you will love next week’s summer special as well. Join me next Tuesday and have a very profitable week in your MSP.

Made in the UK for MSPs around the world, Paul Green’s MSP Marketing Podcast.