While it is a company with firmly-planted roots that date back to 1946, Iowa-based technology integration company Communications Engineering Corp. (CEC) has undergone quite a bit of change in just the past year. The company has made the leap into the realm of managed services – a shift in business strategy that has been guided by new leaders who have brought a unique perspective on the MSP offering.
In April 2019, Tyler Ebnet joined CEC’s team as its new VP of Sales with an almost exclusive professional background in business IT services. Six months later, Kim Lehrman was named CEO of the company after leading enTouch Wireless – a national, wireless phone company – and brought a reputation for growing and developing companies from within by promoting technology. The two leaders brought their varied backgrounds to the security industry and quickly saw the logic of shifting to a managed services model.
“I have been in technology for a long time and have really been focused on the application of technology to new markets,” Lehrman says. “The reason that I am here is to let people know about our technical mastery and that we are bringing new technology options for customers. (The MSP program) was actually under way when I started (as CEO), and it already had full support of the board.”
The origins of the program, in fact, probably trace to Ebnet himself. “Tyler was one of the big advocates of this business strategy,” Lehrman says. “He came from an industry where MSP was the de facto standard.”
With CEC’s core offerings including A/V, fire and security, healthcare communications, IT and two-way communications, Ebnet saw MSP as a logical leap. “When I came on, I saw that there were a lot of parallels from my previous industry to what we are doing here,” he says.
Embracing the IT Mindset
Ebnet worked for nearly 10 years at Marco Technologies, a technology services company that specializes in hosted/cloud services, managed services, business IT services, carrier services, copiers/printers, phone systems, document management and audio/video systems.
“A lot of IT directors are moving towards recurring monthly payments or looking at it as operational cost vs. capital expenditure,” Ebnet explains. “The key was creating a solution that can help those IT directors and other people who are used to it being an operational expense.”
Ebnet carried that philosophy to CEC, where, as most commercial integrators understand, end-users are also looking for ways to decrease capital expenditures – while service providers need to create new sources of RMR while providing great maintenance and care that keeps customers sticky.
“Our tagline is ‘the experience matters,’ and our MSP program allows us to deliver a better experience for customers than we could if we just deliver a capital expenditure and then walk away from the project,” Ebnet says. “As we tied (the MSP philosophy) back into our tagline and what we believe in, it was pretty easy to sell internally and start moving down that path.”
Internal Changes
Armed with buy-in from management and a sales strategy, Lehrman and Ebnet then had to lay the groundwork from a financial perspective. “Our VP of Finance (Mat Hennings) was very critical to helping to roll this out,” Ebnet says. “Just from a financial standpoint, you have to look at accounting for revenue much differently than when a large amount of capital dollars come in at the front-end.”
After the sales team begins selling the MSP program, an integration company also needs to make certain that they have the bandwidth to be able to support an increase in service and support calls coming in after the sale. “Our operations team was also very involved as we crafted this deliverable for the customers,” Ebnet says. “We set ourselves up to be able to go out and service these organizations and have them call in for support.”
Ebnet goes on to say that CEC is giving new tablets to its service technicians so that they can enter notes: “Customers will be able to visualize the progression of the work that we have done for them to make sure that they are getting value back for the recurring payment that they are spending with us.”
For her part, Lehrman says she is managing what is and what is not included in the MSP program from a contractual perspective.
“There are substantial risks to a business if you have not completely defined that well and made sure that the customer and the organization understands it,” she says.
“From the chair of the CEO, it is very important to think and communicate about managing risk as you change the business model,” Lehrman adds. “As (the MSP program) rolls out and you see what is happening in the business, you must make sure that you are monitoring and managing the new business model, because you will not know everything on the front end.”
Inside CEC’s Program
CEC formally introduced its MSP program to the public on Jan. 29, and described it as an “all-inclusive subscription service (that) helps organizations of all types and sizes better manage technology initiatives.” These initiatives include traditional security technologies such as video surveillance, access control and alarm management, as well as A/V services.
“The MSP program allows organizations to break the cycle of justifying large capital projects, only to repeat the exercise three to five years later as the technology becomes outdated,” says Randy Montelius, VP of Technology. “MSP includes a coordinated technology refresh at the end of term, and scheduled software upgrades keep systems current between refreshes.”
CEC maintains that the MSP financial strategy makes budgeting for technology easier for end-users by providing flexible financing options to support system development needs. By packaging cutting-edge security technology into an affordable monthly subscription across a multi-year term, the MSP program enables CEC to service customers with, for example, continuous software upgrades, technology refresh options, IT and network readiness, training, and of course, preventative maintenance.
Add in the COVID-19 situation, and the move to a so-called hybrid MSP model – where integrators embrace this MSP program as well as provide traditional project-based revenue – it seems to make the hit on revenue less dramatic for some integrators.
“Managed service providers have a hybrid – where they have a meaningful percentage of revenue coming in from their MSP customers, but they still rely on a certain amount of up-front revenue from new installation work as well,” PSA Security Network CEO Bill Bozeman explained on a recent webinar hosted by Arcules. “Depending on the industries they serve and the nature of the business model, these companies have been less impacted (by COVID-19) than those who use a more traditional integrator model, where 80-plus percent of revenue is coming from new installation volume.”
“We want to grow that monthly recurring revenue, and multiples on that piece of revenue in our space are much higher than project revenue; however, we think we will always have a healthy mix of both,” Lehrman says. “We do not see everything going to an MSP model, but this is purposefully looking to increase the percentage of our business that produces RMR.”
Once a company decides at the upper levels to embrace the MSP model and lays the groundwork from business and financial perspectives, it becomes a matter of changing the mindset of a company’s sales team and technicians who are on the front lines with customers.
“It is a big change for a sales team and internal staff, and there will be a lot of questions – especially for an integrator that is used to doing project work for so long,” Ebnet says. “Even with my knowledge and work on MSP programs in the past 10 years, it was still a big adjustment (at CEC). Getting buy-in from the entire organization is the key – sales and the rest of the organization must understand why it is a good thing and how it can deliver a better experience for customers.”
Nobody at CEC understands this dynamic more than Garrett Chumbley, who has occupied various sales and operational roles during his 22-year run with the company. Once the sales team embraces the concept – a challenge itself – another interesting piece of the puzzle is how to approach customers with this new offering.
“In security, we like improvements, but we do not like to change our whole world – it is kind of like moving a big ship,” Chumbley says. “We try to lay out a roadmap to help customers look at their overall solutions, and once we have that good roadmap, we can build that back into the MSP program and really reduce the burden that the company is feeling as far as upgrading technology and management of the overall system. It becomes easier once they start to understand how that program works.
“Once we go through that conversation, we help them lay out their technology,” Chumbley adds. “CEC is a very transparent company – probably to a fault – so we help them make good decisions by just being open with the overall cost structure, the financial impact over the next five years, and where the benefits actually are.”
Chumbley says that CEC’s initial focus is on customers in the healthcare, education and manufacturing verticals, as well as corporate enterprises with multiple locations. “We have had interest from small companies all the way up to Fortune 500-type companies,” he says.
“We are not necessarily focusing sales on the cost savings as much as we are focused on the operational expense vs. the capital,” Chumbley adds. “Just like organizations are moving to Office 365 and other subscription-based models in the cloud, it is about people savings. IT is tasked to do more and more with less people on staff, so this is an opportunity for them to offload some of the (security) day-to-day maintenance. Security is still extremely important, but now they can do it on an operational expense-type scenario that frees up cash for them long-term.”
Embracing Change
CEC has pivoted more than once in its long history. It grew beyond its initial radio repair service into sound and intercom systems, then again into IT structured cabling and security as technology advanced dictated a change. While its leadership may have changed, the need to pivot with the times has not.
By adopting the MSP mindset, Lehrman and her team hope to capitalize on the shifting business models of both their customers and the security integration industry – positioning CEC as a successful business well into the future.
“With the complexity of the security world today, it is increasingly difficult to house all of the needed technical expertise internally,” Lehrman says. “I think of it as this shifting of knowledge and risk. (Customers) say they want to surround themselves with the best integrators, hardware vendors, network management, insurance, etc. Now, we can help our customers really think about all those layers and address them.”
Paul Rothman is Editor-in-Chief of Security Business magazine (www.securitybusinessmag.com). Email him your comments or topic suggestions at [email protected].
