MAX 2015: Day three – Money, money, money. . . and strategies

Karl Palachuk

My last report was filed as I was headed down the elevator to the annual MAX party. This year's party was at a place called Bobby McKeys. It's a "dueling pianos" bar with a pretty cool twist. Each piano player had a big sign that you could "buy" to post your message on – until you were outbid. So, in exchange for tips, the nerds at the MAX party put up phrases such as "Will build servers for beer" and "Enter your F***ing Time!!" I paid for the phrase "Time is your widget."

There are lots of pictures on Facebook. So if you missed the party, check out the fun on Facebook.

This morning kicked off with a great video summary from yesterday. Lots of data. Lots of financials. Lots of security.

Then Dave Sobel introduced a series of TED-style talks called "Lightning Talks." Each was 10 minutes long and featured some great people from the audience. With almost 13,000 partners, MAX has some amazingly smart and talented people in the community. Here are three examples of talks given:

Example One: Jim Lippie, Chief Advisor at Clarity Channel Advisors
Jim described something he calls "Channel eclipse." Channel eclipse happens when MSPs let their clients basically wander off to the cloud, taking profits with them. If you just resell Office 365 and move to helpdesk, then you move from a high margin MSP business offer to much lower margins.

He gave several examples that fit perfectly with yesterday's keynote about the shifting environment we live in. As we move from our current offering to the next generation of technology, we need to pay particular attention to staying profitable. There's always someone in the top 25%, and there's no reason it shouldn't be you!

Example Two: Josh Peterson, CEO at Bering McKinley
Josh talked about some key numbers that every service business needs to focus on. You should have these memorized. And, of course, you can't even get these numbers without putting all your information into your systems (MAX, QuickBooks, your PSA, etc.).

The first number is "Service Department Gross Profitability." This number should be a minimum of 55%. To get this number, you need to have a good Profit and Loss setup. Your spreadsheet needs to break out the cost of goods sold as well as service salaries. If you don't know this number, start calculating. It might take some time to get your system set up right. Will you be pleasantly surprised or a little depressed? I don't know. But either way, you'll have a place to start improving your service department.

The second number is "Service Salaries to Service Revenue Ratio." This should be about 33%. This number helps you determine things like whether you can afford a new technician. If your service salaries are too high in relation to total service revenue, it means you're paying too much for your profit. Obviously, your goal is to pay as little as possible for your profit.

The third number is "Effective Hourly Rate." This is the total service income divided by total hours spent delivering labor. You can calculate the global number for all managed services. Also run the numbers for each client or each contract. Instead of trying to look at your "rack rate" or published labor rate, you should try to be at two or three (or four) times that rate. For example, if you can sign a managed service contract for $1,000 per month and you spend three hours supporting that contact, your effective hourly rate is $333. For most of us, that's at least two times our published labor rate.

Example Three: Jason Palmer, Palmer Computer, Inc
Jason is a CPA in addition to being a hybrid MSP. He has moved into a new sector; helping companies stay in compliance with their insurance policies related to data security. Lots of companies are doing business with large businesses such as Walmart. Those companies have to have insurance related to security, AND they have to demonstrate that they are maintaining all the security checks in the insurance forms they fill out.

If, for example, you say that you apply daily patches, you need to prove that you are doing exactly that. If you can't prove that, and you have a data breach, the insurance company doesn't have to pay. You need policies, written processes, and proof that you're doing what the policy says.

These forms are long, complicated, and detailed. That's good, because it can lead to a lot of labor to fill out the form and document processes. It's also good because it will generate labor to fix things up in order to give the right answer.

Of course, there were more breakouts, including certification (Todd Haugland), Rights Management (Amy Babinchak), Writing your own Information Security Policy (Ron Bush), and The Tao of Agile Service Delivery (Manuel Palachuk). MAX always includes a bonus repeat session, voted on by attendees. This year that was Ian Trump from MAXfocus on common sense security fixes.

The 2015 conference concluded with a keynote by Dave Sobel and Alistair Forbes. The audience feedback was energetic and enthusiastic.

... Or maybe it didn't end there
There were people hanging out in the hall for two hours after the event, talking strategies and tactics. More people were downstairs discussing war stories over lunch. I even took people to the airport in the late afternoon and they were still going at it.

In the end, the measure of a great conference is whether the attendees are fired up, challenged, and motivated to go home and make changes in their business. MAX 2015 was certainly a success on this front. It always felt like a business conference and not a "tool" conference. Even the tool discussion were around business strategies (baking security into every offering, analyzing data in your company and in your client's).

If many of the speakers are right, the speed of change is increasing all the time. This conference is a clear indicator that MAX is going to help make that change happen – and help their partners stay up with it. Together we will thrive!

I hope to see you all next year.