Lan-Com Technologies put WestGlow Spa on a managed services contract after a server fire threatened the company's business.It's the stuff of nightmares. Holly Winkler, controller at WestGlow Spa in Blowing Rock, N.C., smelled smoke and made her way through the building searching for the source. Her nose led her to the company's main file server, which houses all the spa's most important applications and data. She discovered thick smoke.Then there was a pop and an orange flash of light that cleared things up in a hurry: It was a fire. Winkler pulled the plug on her server, knowing the fire could damage more than just a piece of computer equipment.
"We were down and in desperate straits," said Winkler. "Everything we do here, from accounting to booking spa appointments, is on our network."
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She picked up the phone and called Lan-Com Technologies, which had provided IT services for the spa for about five years. Lan-Com President Ramsey Dellinger arrived almost immediately and quickly determined the disaster would require extensive hardware replacements.
Fortunately, that's just the kind of problem that Lan-Com likes best. The Hickory, N.C., company, which markets itself as a TSP (total solution provider), has extended the traditional definition of a managed services provider to offer customers hardware leasing, telephony products, IT services and software as a total package. Through managed services, providers take over some or all the IT functions at client sites.
Lan-Com's TSP approach, according to both Dellinger and his customers, produces significant cost savings—and a reduction in technology headaches—for a single monthly fee. The fee equals predictable revenue for the provider.
Dellinger moved WestGlow from its monthly service agreement to a total support contract that gave the day spa new equipment immediately—and affordably. "Fixing it was a huge job, and Lan-Com cut it into manageable payments for us with all the equipment financed," Winkler said, adding that the spa saved thousands of dollars through the new contract arrangement.
Breaking new ground
This type of comprehensive service plan appeals most to companies with 15 to 200 employees, said Dellinger. "Five years ago, when the ASP [application service provider] started to evolve and everyone said it was the future, we didn't disagree. But we wondered about the infrastructure players and service providers. Whenever there's a problem, there's a finger-pointing contest and the client ends up not trusting anyone."
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Since founding Lan-Com in 1998, Dellinger has helped customers understand the benefits of hiring a single IT provider to manage the range of technologies. "Networks today consist of commodity-based products for the most part—firewall, e-mail, network printing, storage, etc.," he said. "If I can control 100 percent of this fundamental stuff, the baseline infrastructure, then I can make it run better."
And that makes Lan-Com a managed services pioneer. The company uses N-able Technologies' managed services platform. "Lan-Com has partnered with us for two and a half years now, and it is very successful," said Mike Cullen, vice president of sales at N-able, in Ottawa. "They are visionary in the field and one of the first companies we've seen that has taken on the concept of hardware as a service."
When an IT problem arises at a customer site, Lan-Com provides a support engineer to deal with it. "We become their IT staff at that point," said Dellinger. "We take the client completely out of the equation. And we resolve the problem much faster than their normal circumstance."
Solving old problems
The TSP approach, said dellinger, solves a couple of common customer problems. First, there is an incentive to streamline the choice of technologies used in the corporate network. A simpler network is easier to support, and there is no financial gain to selling a larger number of applications, Dellinger added. Second, the Lan-Com support engineer works seamlessly within the organization, acting as the IT department, so there is a motivation for the customer and the reseller to share information in a detailed way.
Other customers choose to purchase hours in blocks, at a discounted rate, request a technician as needed and have the technician's time billed against their contract. Sometimes customers start with a basic contract and, over time, build it into a more comprehensive package.
In addition, customers can purchase a contract to hire a dedicated support contact for their telephone systems. "Our staff knows that everyone who calls in at the help desk is a customer," said Dellinger. "And we know that we make money if we can save the client money."
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As part of the contract price, Lan-Com leases the necessary hardware to its customers. "We've taken the cash flow game out of it for our clients and taken them out of the IT business."
Building on success
The strategy, although unfamiliar to most customers, captures their interest, said Dellinger. Today, 46 companies have monthly service agreements, and Lan-Com adds another two or three per month. Vertical markets, such as private insurance, health care and municipalities, have proved especially amenable to the model.
The upside for Lan-Com is huge. In 2005, the company earned revenue of $4 million, and Dellinger said he expects to hit $5 million for 2006. "We are getting really good margins of 30 to 35 percent and making $170 per hour on service," he said.
In addition, the three-year standard contract ensures that Lan-Com will have customers and revenue in the future. "We have business security," Dellinger said. "I can guarantee that we will be in business for years."
The TSP process
The TSP approach definitely lengthens the sales cycle, but it also lengthens the life of the relationship, Dellinger said. The majority of Lan-Com customers have been with the reseller for three years or more. WestGlow has been using Lan-Com's services for more than five years. "We have one technician that has been working with us for years and knows our system inside and out," said Winkler.
Lan-Com does a lot of upfront work with its customers with an eye to retention. First, a sales engineer partners with the potential customer to evaluate the site's computing environment, identify holes in the system and assess future needs. "We look at which PCs might need to be replaced in two or three years, where memory upgrades might be needed, what servers are about to go out, which backup tapes are old and what is the state of the firewall," said Dellinger.
Lan-Com then calculates a monthly per-user contract price. "With managed services, the ultimate is a fixed-fee price per desktop that typically supports the maintenance of network devices but not hardware," said Cullen. "Lan-Com takes a look at the whole unit, analyzing hardware, software, applications and the level of maintenance and is able to calculate a guaranteed fixed price over a two- to three-year period. The result is usually an aggressive price to the customer."
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Average pricing, depending on the specific customer situation, runs from $110 to $160 per user. "If they hire more employees, they know that their price is going to go up," Dellinger said.
The price is reasonable, considering the savings. One customer was paying $65,000 annually for its IT person. Lan-Com brought that cost down to $1,800 per month, or $21,600 per year.
Next, Lan-Com and the customer enter a 90-day learning period. "The first 90 days are the toughest," said Dellinger. "That period is a courtship time where we get to know them and their pet peeves, we get up to speed on the vendors that they use, and we catch all the things not found in the initial assessment."
On the horizon
In the future, dellinger wants to help other solution providers use the TSP model. "The next evolution cycle is creating a channel model. I really think it is a market we could capture if we did it right," he said. "It would make money for resellers and give them an edge with the customer."
A second option, Dellinger said, would be to create a funding consortium allowing small resellers to lease equipment to their customers. Lan-Com would charge a transaction fee to do the leasing paperwork, fund the deals and hold the lease. "The trick to this program is being able to fund it," Dellinger said. "In some cases, you are funding $100,000 or $150,000 in equipment, and some resellers just can't do that. We've already got the infrastructure in place."
Hailey Lynne McKeefry is a freelance writer based in Belmont, Calif. Contact her at hailey@cyberdeacon.com.
