2 – How to add a revenue stream (with 18%-20% margins) to your IT Managed Service Company

Glüh is a Software as a Service or Saas solution that allows an IT Managed Services Provider to quickly and easily add hardware and products to their offering. The software allows staff to quickly and easily quote and order products, which assists with providing an amazing customer experience to clients and end users. Glüh also provides a self service procurement portal for clients. In the interview below we dig deeper into the history of Glüh and more importantly how the software can add a new business unit/revenue stream to your existing business.

 

Episode highlights:
00:13 – Introducing Lorenzo.
04:06 – The history of City Software?
06:55 – How to grow, scale and systemise a IT Managed Service business.
09:28 – The history behind Glüh (It came from a $50 million a year business)
14:49 – How people are using Glüh today?
20:35 – Adding a business unity with 18% to 20% margins your IT Managed Service Company
26:51 – Get a Demo or Trial of Glüh

Transcription

David: Hi everyone! Welcome to another episode of the ResultsPoint podcast on the ResultsPoint podcast we talk to successful business owners in the I.T. consulting and in the I.T. takes space about how they grow and scale their businesses. And today I’m talking to Lorenzo from Gluh now. Lorenzo both ran and sold a company called City Software and is now running gluh. And he’s basically going to tell us a little bit about his journey. He’s also going to provide some action or insights about how you can grow and scale your business. Welcome to the podcast, Lorenzo?

Lorenzo: Thank you and I’m glad to be here.

David: And Lorenzo, can you tell me a little bit about City Software, just what it was and why you started it?

Lorenzo: I started back in 1991, after having work for a German company and sold the business model in Germany that I thought should be adapted to Australia, so we were the first company to take credit card transactions over telephone and be able to dispatch software products directly from a warehouse to small to medium size businesses. So that increased speed and its a lower cost model, business model than competitors that were largely retailed back then and some corporate supplies. So they may started hearing about online coming to the market, we were wondering how that would work without business models. So with the first two set up on online it was a priceless, the beginning was in 1994, and that evolved into live stock availability and pricing by 1998 and it was actually based on a skill server back then. So we we’re big at creating platforms internally within the organization to drive the processes, to transact with the client very quickly and very reliably.

David: Awesome, so City Software basically provided software and hardware to sort of end users or customers.

Lorenzo: Yeah we grew into the hardware range. The big breakthrough came in 2004 when Czech Republic back then agreed to run a drop ship program with us and they create a for a models cost in a consignment out to our clients and therefore their inventory became our inventory. We started working with supplier feeds to feeding less to stock levels and pricing back in the mid 90’s when it was spreadsheet based and by then it was quite sophisticated. And that enabled us to make take back stock, our stock, and our revenue screw dramatically at that point.

David: Yeah well okay. And who was who was the the end user of City Software. Was that was that just small businesses or bigger businesses or?

Lorenzo: We had them fast majority of clients with small businesses but about 2/3 of the revenue was a bid market and enterprise so of the turnover they turn off the business crew to $50 million in turn over. That day was 10,000 or more than 10,000 transactions a month and so that was predominantly to SMB but however in the enterprise actually some quite big orders there.

David: That’s impressive. $50 million in revenue is huge. How did the marketplace learn about City Software? Did you run marketing programs? I’m just trying to think of anything that’s useful to sort of a listener we have. As an I.T. Consultant is there marketing programs that you run to get that growth. How did you actually put your offer in front of the marketplace?

Lorenzo: Yeah initially it sounded off with the magazines , PPC and so forth and also the back page of the green guard in Victoria. There was a lot of local rags and industry, publication that we would advertising and that evolved into more more electronic forms of marketing so electronic direct mails (EDM’s), was a big part of what drov our revenue by the mid 2000’s We started out with traditional press ran about that time so it almost become exclusively EDM’s and digital forms of marketing some Adwords and shopping sites to some extent, we were thriving for 25 years There was quite an evolution in marketing strategy over time.

David: I remember those those magazines we got a CD on them with some stuff on that.

Lorenzo: Yeah we would also have such a big catalogue in the back of magazines, it was a bit funny that way. We were actually selling them in new stands and I couldn’t believe that people would pay $5  for our catalogue and I said to the newsagent “Why would they do this?”. You know for while we were doing like 30,000 copies a year or 40,000 copies a year circulation”. He said, “Well, you wouldn’t believe it, that’s at the top end of the second year, you know there’s Women Days and so forth, and there’s ours was on the top of stackable list, special list publications so I couldn’t believe that but anyway that was a an era.

David: So your marketing was a big part about I guess growing City Software and bringing on more and more customers.

Lorenzo: About 7% of our revenue was spent in marketing and the substantial. It was funded from vendors so somewhere between 5% and 7% was marketing. We did punch above our weight wen you consider our marketing spend.

David: Are there any big lessons that you can share with our listeners around growing a business, scaling a business and systemizing a business.

Lorenzo: Yeah firstly, I would say keep thing simple. It has to be what you do it needs to be simple to understand to a customer, has to be simple to understand to your staff, otherwise I won’t explain it particularly well and you want to keep all your processes as simple as it possible as it can. And I think that’s something MSP are been doing quite well in Australia there’s been a lot of changes going on and so the consolidation of what they do and standardization has been a big factor for lot of MSP’s.

The other part is tough I think the biggest challenge in the organization has it off scene has been it’s the people, and so building a team of people in accordance to the culture of the organization that is most conducive to delivering the outcomes that your customers want is a tricky. Looking after the staff, that’s a whole session in itself. The other part is the business model. It needs to be financially sensible. You know if you start an organization, and it survives year one, it probably was a good idea. If it survived year three, it’s a good idea and you learned how to make the cash flows work. If it survives beyond three years, it’s because you’ve managed the leadership transition, because generally the staff, that your started off with have transitioned. So yes sometimes staff can evolve through many roles within the organization, but usually the founders start farming off parts and delegating that to staff. Hiring the right staff to grow is critical to get passed 7 years cycles.

David: Your are basically trying to build a business into an asset that you can then sell.

Lorenzo: No-one wants to buy business that is revolving around the founder. Especially if the founder is running around like a headless chook trying to manage the business. They want to have something that can run independent of the founder.

David: That makes sense. Can you tell me a little bit about how Glüh?

Lorenzo: Glüh is the system which was integral to the success of City Software. Firstly, it would have been impossible for us to do the transactional volume that we were doing at City Software. Imagine 600 to 800 transactions on a normal day and you only got 12 people that handle all that customer service related issues. The sale in the first place, the procurement, the online ads. With only 12 people it would be impossible to do without the system that we had. They systems has evolved over the years. We migrated it onto the .NET Framework in 2005. Since then we’ve ran more that a million transactions through the system within our business. So we’ve seen everything that goes right and everything that goes wrong. Glüh has been designed so it’s super simple to use. It’s a bit like when the iPhone first came out, nobody asked for it, but once I’ve seen it an operation, then everyone wants to have one.

Glüh is so simple and intuitive to use, because as I mentioned beforehand, the high staff turnover was in the call center. It was very hard to train the staff how to sell and use a complex system at the same time. So we’ve made a system so easy to use, that you can log in and I’ll just figure it out.

Lorenzo: So that system was extremely effective in driving revenue for us and several mates of mine in the industry want to have it so we started working in multi tenanting the system about five years ago, maybe six now. We got to the point where we, it was a slow revelation bit by bit. Some people said: “Why just my mates?  Every party service provider should have this?” To sell a product to a client we found that it would take a MSP over a hour to find the product, sell it, manage the procurement and so forth. Well in Glüh that takes an average transaction like that we take two minutes and we’ve got a lot of records that prove that.

MSP’s just don’t have the time to quote and sell product. Anything that outside the core range of product is just unprofitable. Glüh makes it profitable. That customer would rather buy that printer from the IT service provider than from a City Software or anyone else.

David: Or Officeworks?

Lorenzo: So, why not win that business?

David: So what I’m hearing is that the software basically allows a MSP or any business for that matter to plug in a online hardware or software catalog of products that their customer can purchase from the MSP?

Lorenzo: Yeah so it links everything that’s available through their supplier feeds becomes available through the Glüh platform. MSPs can then sell these products to  their customers. It’s so efficient, we found that even service tech’s and consultants are selling now. I never like selling because firstly I think it sells like a dirty word, that I want negotiate price and delivery cost and all that. Glüh sets all that up. It’s all based on the rules that can be configured.  The price can be set. I can find that printer or POS switch or whatever it is, really quickly, that tend to do so. They can’t spend an hour looking for a product to service the customer and not charge for their time. With Glüh they can find the product, quote it and order it very quickly.So, they getting much more brand engagement with their client base.

David: Does that work when the tech is on-site and something is broken?  Can they just search for a product, find it, punch it in, get it ordered and signed off and everything like on the spot?

Lorenzo: Yeah that’s a good question. Absolutely, it’s a mobile application and SAAS platform.  They can do it right there, in the in-front of their customer and get it procured. If it’s simple it will take 30 seconds, if something more complex two minutes and they don’t have to ring the head office to make sure that the staff gets it procured in the back end.  It’s all automated, Glüh has an automated procurement engine on the back end.

David: That’s that’s really awesome. So how are some of your customers using Glüh today? I mean you don’t have to mention names. It would be interesting to hear about how MSPs are using Glüh .What has it done for their business? What sort of results are they seeing?

Lorenzo: Our clients broadly fall into two categories. Most of them are small business. Small business generally means anything up to about 50 people. So they finding quoting the normal things they quote on  a lot quicker to quote in Glüh. A standard quote, of let’s say a NBN upgrade package, will take 30 seconds for him to do. It has built in digital analytics so you can say: Which people have viewed the quote. What time they viewed the quote. How many seconds have viewed it for? It will let you know whether a quote is hard or not. So theanalytics is very powerful and its very easy to convert that into a purchase order. The automated procurement takes over. It figures out the best way to procure the product based on your supply availability. It’s a very intelligent system and the other part is that the clients end up buying a whole lot more stuff like for example Ink and Toner. The clients will just come back month after month and fill up that cabinet with Ink and Toner. There’s really good margins on it. So we’re finding that IT service providers that are selling in the SMB space, they’re generally making somewhere between 18% and 25% every margin on client purchases. That’s their mark up on their product sales transactions. Most of them are on the upper end.

David: So is this inside of glue?

Lorenzo: So when they’re selling the products, they’re making some good margin on it and the customer would be prepared to pay a higher price from an IT service provider because they’re getting the right advice and they trust the IT service provider.

The other group of clients that we have, those that are selling into enterprise corporate in a large government institution and so forth. So, they don’t see a doubling of revenue. They’re more like a 20% increase and that increase is largely based on all the volume that the procurement departments want to get. They might want to search for products themselves.  They can go into the white labeled portal, click on what they want and order it. For example they can instantly get a list of cables that can be purchased and so procurement departments love it. You can put customers on discount structures or grade them on discounts based on certain volumes that they would do. That whole process is automated so when the customer logs in, they say what they need. We have a bid management process for bid based price products. You don’t necessarily have to let your clients use the online procurement portal. To be honest, just on the half right now using it effectively of the existing clients but I think we’ll find over next year that percentage will increase.

David: So with the procurement portal you are  basically adding a procurement portal to your current business. If I’m an MSP and I now want to allow my clients to reorder toner or order anything. I can literally create a portal using your software and they can log in and pick what they want and order stuff from me instead of Officeworks. Is that correct?

Lorenzo: Yeah that’s correct. In fact you don’t have to setup the portal, it’s already there. You just have to invite the clients to it and you can invite them either individually or on mass. They click and set a password. So this is eCommerce for ConnectWise and Autotask. And it can run independently without a PSI system. It can sync directly into Xero. It’s a complete system that operates autonomously. It’s eCommerce for MSP’s. There is button to flick a switch where it can be enabled, which creates a retail site. Most MSP’s don’t want to advertise a price to outsiders, so we can force clients to have to log in to see the price. There’s a workflow process so when a client places an order, they’ll all go to waiting approval section. It will notify you that there’s an order to approve, and that’s where you check that they’ve ordered something that sensible.

David: So it’s a little bit of a workflow there?

Lorenzo: We have it because a lot of MSP’s worry about eCommerce and they are concerned that clients buy things that they don’t want to sell. You don’t actually have that problem since it’s mostly automated.

David: Earlier you said that you’re seeing people adding sort of 18% to 20% margins on revenue. Is that so that’s literally putting a portal into my company and adding 18% to 20% margins to my business. Is that correct?

Lorenzo: Yeah in the product sales yes so you might find that the overall percentage goes down slightly because your proportion of product sales is increased but your overall gross/net profit dollars in the business will go up. There is profitability to consider. We have one client for example: Let’s start at this as a one man band as an early trial, last year, so that’s a bit of a year and a half ago. In October 2017, as a one man band, he did $412,000 dollars in product sales and in November he did $390,000. So this year, he’ll do $4 to $5 million dollars of sales as a one man band and he’ll make a very good margin on that. He’s selling into mid market enterprise. That wouldn’t be typical actually for an Managed IT Service Provider.

David: And decent margins. So anything else that you think that we’ve missed talking about Glüh? Basically what I’m hearing is that Glüh came out of City Software or that experience and it has now been put into his own product that people can use and basically plug into their own business in with very little effort.

Lorenzo: Yeah it typically takes an MSP, one hour to finish to the final stage of the configuration.It’s very quick to integrate Glüh into ConnectWise or Autotask or Xero. It delivers incremental sales because you answer client questions on the spot. Therefore you don’t quoting as much. You say to the client: “Look at these recommendations, what do you think?”

It was a secret source of City Software. Now, I bet the farm on it quite literally. I gave up my day job and I sold the business because I really believe in the strategy of  product sales within the MSP market. Because I think the MSP leads that additional attraction with the client. They don’t wanna be buying stuff from other organization that could potentially be competitor than attract and it’s what the customers want. So, in a first year of trading, in less than 10 months, we’ve set up 93 clients and it’s really been sensational some of the results that these clients have seen and very surprising. They were not expecting to be able to obtain these types of results with so much simplicity.

David: I think it’s a really good idea and I like it that it comes from experience and being in the trenches. Then building, systematizing and creating a product out of that is very impressive.

David: Was there anything else that I haven’t asked you that you would like to mention to listeners.

Lorenzo: Look I think, you know some MSP’s might be thinking well, philosophically this is fit in the strategy of where we going with the client. I would highly recommend to think about a question, the belief that you can’t sell a broader of range of products, that if you do that, it’s gonna de-focus your organization, it’s not gonna be profitable, and you just need to stick to your core. I’d really like to challenge that thinking because it’s not actually what the customers want and if you can deliver the broader range of products that they want to buy from you, well then you can do that with simplicity, without dis-focusing your core business from your core business and you can do it profitably then why wouldn’t you do so?

David: You can grow your business and then add more consultants and then keep growing your business like the pie just gets bigger and bigger bigger. That makes sense.. Did you want to say something else?

Lorenzo: Look for this reason, we’re so convinced that it works well, that we offer a free trial for clients, we take about an hour of our time to configure out that client, and make the website look like their brand, you know with colors, logos, and all the details we can figure this supply feeds. The MSP’s do a little work to do just integrate into, you know the settings for ConnectWise or whatever PSI’s system they are using

David: What’s a PSI system?

Lorenzo: An application like ConnectWise or Autotask that manages their personal services billing. So it works very well and tandem with that, and we let them use the system, to prove that it actually works within their business and it does deliver proper results. We would make that effort for the MSP on the basis that we know that it works if they use it of course.

David: Now that makes sense. So there’s a free trial. What can people find you in if people have questions for you. How can they contact you?

Lorenzo: So if you go to www.gluh.co there’s more information about  what we do there. There’s a free trial button so you could either click the “Try glüh for Free” put in the few things like suppliers, what suppliers you utilize and a couple company details and that will get you going with the free trial or you might want to say demo first and not actually do a proper trial and you could click the “request a demo” button on the online store and we will do remote session with you and show you the product in action per remote session. So, alternatively, you could call us on 1-800-00-GLUH. Gluh is the German word to “glow”

David: That’s funny I actually thought that was the German word for it sort of sticking things and systems together. It’s pretty funny.

Lorenzo: Yeah you might have heard of gluh wine for example? Which you drink, it’s a malt wine that’s warm, that you drink after skiing, and that makes your face glow. So that was called a gluh wine.

David: And and you calling your software as a service product glüh because it helps companies glow?

Lorenzo: Yeah either way, I think probably a good retail brand because people would immediately connect with the meaning of it but emotions attached to a brand thus a start experiencing the service that we offer and the “ü” is kinda looks little like a person smiling so the u with and the two dots on top and we kinda like that so you know we’re getting that brand to go and I think that it’s working.

David: Very cool.  Well Lorenzo thank you very much for coming on the call. And I really hope that people can learn from this. I think there’s a lot to learn from you. I also think you have a great product in the marketplace. And I would highly recommend that people go and check out gluh.co

Lorenzo: Thank you very much David. I really appreciate the opportunity to share a story and look forward to serving the Australian market.

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