MSP of the Year Finalist: How Discipline Turned Cal Net Into an MSP Powerhouse
This is the second in a three-part series profiling the 2018 finalists for the MSP 501 MSP of the Year Award. Winners will be announced at Channel Partners Evolution, Oct. 9-12. Read about finalist Premier Technology here and SabinoCompTech here.
Today, managed service provider Cal Net Technology Group is one of the fastest-growing MSPs in the market, No. 44 in this year’s MSP 501 rankings and a finalist for Channel Futures’ MSP of the Year Award. But in 1995, a young Zack Schuler was working at Circuit City selling PCs to consumers eager to bring the ease and power of enterprise technology into their living rooms. While the big-box retailers were selling machines hand over fist, no one was helping the buyers install, configure and learn their new systems. Schuler began to help these users on the side. Not surprisingly, the money he brought in for his services soon outpaced his income from Circuit City, and Schuler decided to make his side hustle his full-time gig. He formed a company called PC Connection and was off to the races.
Born out of deals solidified with a handshake in Circuit City’s parking lot, PC Connection did exactly what its name suggested. There were no real service offerings beyond the initial project in those early days, and the company was what present-day CEO James Hwang calls a “trunk slammer” MSP: Get in, get out and move on. It wasn’t long before Schuler started to itch to grow beyond personal computers and foray into the server and compute market with a services-based model. The rest, as they say, is history.
In 2013, Schuler sold his MSP to Olympic Valle Capital for $17 million. Four years later, IT services and consulting firm NexusTek bought Cal Net for $33 million. So how did it double its valuation in four years? It all comes down to one central theme: discipline.
Discipline, Meet Client Management
Today, Randy Nieves is the senior vice president of product management for NexusTek, but prior to the acquisition, he served as the chief technology officer for Cal Net. The “secret sauce” to Cal Net being able to stay ahead of the competitive curve, he says, was its early ability to deliver higher-level consultative services than most firms could. Schuler realized more quickly than most that there was only so much success he could achieve selling on price; instead, Cal Net sold on value.
“When I joined in 2006, Zack specifically hired me … to be the outsourced IT director/consultant to clients. He called it technology management,” recalls Nieves. “We hired more [account managers] and also trained our engineers to be consultative. Our sales staff was technical and also consultative back then.”
The structure worked for Cal Net for several years, but eventually the industry drove the price of MSPs’ time and management (T&M) down to a point where consulting wasn’t as scalable as it once was. The company’s technology managers (TMs) were stretched too thin, essentially playing the part of presales engineer, salespeople and account managers. After Schuler sold his stake in Cal Net and left to pursue other goals, Cal Net restructured its client-management team to reflect the changing channel.
The MSP added a sales-position account manager that didn’t work on a billable-hours structure, moving some of what Nieves calls its “farmer-type sales folks” into those positions and placing “hunters in the true hunting seats.” Billable TMs still exist today, but they’re more engineering-focused. Each manager stays with the customer throughout the life cycle of the account, touching base every 90 days whether it’s needed or not to make sure Cal Net and the customer are aligned on a technology-supported growth strategy.
When Hwang, a West Point graduate, assumed the CEO mantle in 2015, he was determined to introduce a variant of the discipline he learned in the military to Cal Net’s processes. Perhaps the most effective change Cal Net implemented was the adoption of a new account-management platform that established metrics for customer relations and – most importantly to Hwang – introduced discipline into the system. It built a technical-briefing-report (TBR) platform that quantifies the client experience with metrics that assign values to every customer touch point, give at-a-glance performance insights and provide historical trends to see how managers perform.
“It’s driven down churn and increased the lifetime value of the account,” says Hwang. Nieves adds, “The new tool allows for a consistent deliverable done on a consistent basis, so really the discipline around delivery and scale is what got fixed … Having a cadence and framework for regular customer management is pretty basic, but for some reason, most firms struggle with it.”
Cal Net instilled discipline in marketing and product management, too, pushing account managers to always think about how to mature its offerings. They’re taught to look beyond simply landing a client and clearly articulate how to build upon the value the customer gets from the relationship.
MSPs are built by technically savvy people who, at their core, are creatives. They address each challenge as a puzzle, figuring out the best way to use technology to solve for a problem. If you ask 10 different engineers to name the best SaaS-based IT infrastructure for small businesses, you’ll get 10 different answers. As impressive as that creativity and technical expertise is, says Hwang, it isn’t the type of savvy that builds industry giants.
“At Cal Net, everyone has a role,” he explains. “You must create a company in the right setting and with the right guideposts. In other words, you must implement the process for creativity.”
Great Companies Have Great Leaders
Much like an army battalion, organizations live or die by the example, process and mission established by those in leadership positions. Despite its great success and growth into an MSP dynamo, Cal Net has managed to keep the same sense of possibility it had in the beginning, when Zack Schuler was transforming his trunk-slammer practice into a full-fledged managed-services business. That’s only possible because of the focus the MSP places on grooming and fostering its leadership.
Hwang says leadership must be “buttoned up,” and that leadership training at Cal Net starts by instilling one core principle.
“The title is just the ground floor,” he explains. “You’ve earned nothing yet, and you must start over to gain excellence all over again …You must take the time to build a relationship with your direct reports. Let them inform why you’re there.”
Acting as a team is critical to success as a manager at Cal Net, as is fostering talent through mentorship to make sure the company’s values are central to every employee’s job function. The approach seems to be serving them well. Earlier this year, the acquisition by NexusTek expanded its reach significantly. Going into the acquisition, it served customers with 25-100 seats in Southern California. Now it serves not only as the IT provider for SoCal, but the entire Southwest. The deal enabled the company to bring enterprise talent to SMBs and fed its mission is to build a nationwide scope that covers 25-200 seats.
If it maintains its clear vision and the discipline Hwang holds so dear, the sky’s the limit for this MSP. Cal Net has ridden every tech business trend of the last 20 years to a level of success that must have been unfathomable to Zack Schuler when he was hustling for clients in that Circuit City parking lot. But that’s in the past. The MSP knows where it wants to go and how it wants to get there, and that’s what will continue to enable its growth and success.
“You need a process and framework to really build a business,” says Hwang. “You must have a road map that will help you evolve to get there. You must get it, want it and have the capacity to do it.”