Saturday, August 22, 2009

The Recession Hits Home

Sometimes I give the impression that nothing ever goes wrong in my business. I don't mean to do that, but I'm like everyone else: I'd rather focus on what we do right than what we do wrong.

So let me take this opportunity to come clean about the recession and my little consulting company.

The stock market was wandering south for a year when it fell off a cliff in October of 2008. We managed to hang in there that quarter. We even made a profit.

In Q1 of 2009 we got rid of a PITA (pain in the ass) client. We also laid off a technician in order to remain profitable. In Q2 things picked up a bit with some server installs. Profitable again.

So we managed to have three profitable quarters in the worst downturn since the Great Depression.

But it was painful.

Back in February I blogged about Our Scary Budget projections. Basically, we stopped projecting growth (started projecting less revenue each month) until September and then projected only tiny growth for the end of the year.

It always hurts to cut back employees, but sometimes you have to do it.

I had dinner last night with several current and former technicians. I'm grateful we can all still get together and tell stories. One of the stories was about how few service requests we have in the system.

When client budgets are stretched, they stop asking for help. They don't always know what's covered, so they cut back on everything and we need to just keep plugging along doing maintenance.

Thank goodness for managed services!

We have an actual "floor" with regard to service revenue. If there are no server sales, no desktop sales, no software sales, and no broken computers, we are still guaranteed that maintenance labor.

But that floor settles downward in a recession. A client drops a desktop here, a desktop there. At $60 per station, the guaranteed revenue floats down a bit. When our clients are in recession, we're eventually in recession as well.

Our worst-hit client had to lay off 1/3 of their staff. Their bill went down $900 per month. Yes, they take less labor to support, but I wish we were both back where we were.

And the final numbers are in for July. We did not make money.

Gulp. We lost money.

Lots of it.

Thank goodness for the stock rally as I'm selling stocks to put the money into my business.

Now, I don't mind doing that to grow the company. But I don't want to do it just to keep the lights on!

July hardware sales were 85% below our projections (these are the scary revised projections) for July.
Software sales were 100% below projections. Not one nickel in software sales.
Material sales (all other goods) were 99% below projections.

Now all of that isn't totally horrible because margins are small and the actual reduction in profit wasn't huge. A few thousand dollars. It hurts. I don't like it. But many consultants live without selling hardware and software.

Labor is what hurts.

Even in the down economy, our hourly project labor has been about 32% of the managed service revenue. This is actually higher than the 25% we normally estimate because we get paid to make changes, including taking machines offline, deleting users, archiving mailboxes, etc.

Well, July sucked.

We billed less than $600 in hourly labor in the month of July. Many thousands below the scary budget.

The numbers aren't in for August, but it's a lot better.

Still, our managed service monthly revenue is about 15% below the monthly revenue in January.

At this point, we're about as lean as we can get with fixed costs. Our landlord came to us and volunteered to cut our rent in Q1, so we can't really ask him to do more.

My friend Joe Panettieri (The MSP Mentor) posted a note just two weeks ago about MSPs having trouble paying their bills.

We live in a world where costs float up and down. Expenses float up and down.

But expenses don't float down very easily. My hardware/software example is the exception. We don't stock servers or workstations, so we only buy them after the client pays us.

But with everything else, we have commitments. We can get stuck with "seats" we're paying for but not using. I have a "3 pack" and I'm back to being the one sales guy. We have to do regular sweeps to reduce the number of CALs for spam filtering, anti-virus, Zenith.

Managing shrinkage is very difficult, especially when it happens suddenly.


Where do we go from here? UP!

I'm still projecting growth starting in September. Slow. But we have a server installation on the horizon. We're continuing to do client Roadmap meetings.

Cloud services are going to start a lot slower than some people have projected, but I think they'll be a huge growth area for the next 16 months. That's the kind of investment I'm happy to make.

We need one more good client (25 seats or so) and we'll be back in the pink.

So the truth is, our lean little machine is one sale away from being back where we belong.

In the meantime, we're counting paperclips and continuing to tighten our belt.

We'll probably lose $1,000 in August, which is close enough that we just might not! That's only a few hours labor in the next week.

September will be much better.

Somebody said Flat is the new up. That may be true for the next few months.


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Seminar - Introduction to Zero Downtime Migrations

1 comment:

  1. If it's any consolation I actually had a dream the night I read this. You had gotten the local college as a customer and had just completed a server install when I walked in and saw the completed server. Very strange but maybe it's a sign of good things to come...


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