Speaker 1: Welcome to the JMARK Business Innovation Technology Experience.
Todd: Welcome everybody again. We are today going to be talking about some not really complicated topics, but they’re not as fun for a lot of business owners to talk about. They could be fun for some business owners depending what kind of business you’re in. Essentially the idea of OPEX and CapEx and IT spending. We’re in a unprecedented time right now where a lot of things are happening in the economy with COVID-19 and where there’s a lot of changes in spending and a lot of uncertainty in the future. Tom, can you shed some light on this idea and how you see OPEX and CapEx spending specifically in terms of IT, of course, how it’s playing out over the next nine to 12 months?
Tom: Yeah, it’s a really good and not an easy question to answer. We’ve been pulled into lots of environments where clients say, “I just want to move to the cloud. I want to get out of the technology business. I want to be able to write a check every month and I don’t have to worry about server refreshes and don’t want to do all of these things.” But when we do a three year study, in terms of the total spend for the organization in a cloud environment or an OPEX environment versus a CapEx environment, oftentimes we find that it’s 30 to 40% more to spend on IT to move into that environment.
It’s not always that way, but we have to be really careful when we make assumptions that the cloud is simpler, it’s faster, it’s easier and it’s less expensive because when we’ve done the studies, we were brought into an organization not long ago, they asked us to do a five year study for them on moving to a hosted cloud environment versus putting on-prem servers and delivering things that way. And literally it was one fifth of the cost to run in an OPEX environment than it was in a CapEx environment. And then because of our awesome partnerships, we were able to bring some 0% leasing to the table for the equipment and while they had a monthly spend associated with it, it was a really low spend of 0%. So there was no cost of money associated with it and they were able to achieve kind of the best of both worlds. So they got the least expensive longterm total cost of ownership, and they got to spread it out over time so that it had a smaller cash impact on the business.
And so the conversation around that, it becomes even more sophisticated when you’re buying equipment and whether you want to take advantage of accelerated depreciation or 179. And so are you trying to achieve tax benefits? Are you trying to manage cashflow? Are you trying to understand how the OPEX spend or a cloud environment is going to work over a period of time against those same questions? And so it’s certainly not an easy scenario. And is business by business, are you a cash-based business? Is that important, or are you making money but you want to handle things on your balance sheet in a certain way?
It becomes incredibly complicated to work through, but like everything else, fundamentally, it becomes a math problem. But if you don’t understand the OPEX commitment, especially in a situation like this, if you have committed to a cloud computing environment and there’s five servers that always have to be running in a cloud environment for your business to operate, you can’t shut those down. You’re still writing that same check every single month, no matter what, but if you have made a onetime investment in OPEX and you hit these hard times, you don’t have those monthly commitments. And so you’ve paid for and as the business needs to adjust, you don’t have IT becoming a drain that’s making you choose between, “Well, I’ve got IT and I can’t let that go or I got to fire people.” That’s a horrible circumstance to be in. And so there’s lots of things that need to be considered in this conversation.
Todd: And I think thinking about this kind of getting into a little bit of psychology here, but there’s a story that a lot of people put in their minds, and we all do this with different things, we create these stories in our heads. And what we’ve seen with a lot of businesses is they create this story in their mind where they have to move to the cloud, or they have to have another server to do this little thing or another computer to do this little thing. And when you’re looking at this situation like we are now where the budgets are squeezed a little bit and where people are balancing things a little bit more carefully, making the right decision is more important than fulfilling a story, self-fulfilling prophecy in your mind that is only going to make things worse.
There’s so many times, like you said, where we’ve gone in and we’ve had difficult conversations with people because they had like, “I want to move to the cloud. I want to move to the cloud. I want to move to the cloud.” I’m like, “Well, okay, well, we can help you move to the cloud, but it’s going to cost you a lot more than this thing.” And it’s about getting the right service and also it’s really frustrating to me because there’s a lot of MSPs out there over the last 10 years that have used this idea of OPEX versus CapEx in their sales strategy. And the idea is that they’re pushing the OPEX and saying all of the benefits of it and predictable budgets and all these things, which isn’t a lie per se but oftentimes it’s used to entrap you in a situation that you can’t get out of.
There’s various vendors out there or competitors out there that we’ve gone up against with that their MO is they take a company and put them all into the cloud and then they sell them little services. Oh, and then there’s this service, and then there’s this service and they don’t true up the dates. So they’re all at different end dates, the terms. So even if you wanted to get out of the cloud agreement, you couldn’t get out of this other agreement for another six months. And then there’s this other agreement has another three months on it. And then this other agreement has another five months on it. And it’s maddening to IT companies that are like… Not IT companies, with clients that for prospects, just they’re stuck.
Speaker 2: I think, Todd, one thing I just want to add a spin on what you said about, we put these stories in our minds about this and I think one of the things you just illustrated with the end of that is what I was going to add is that a lot of times we don’t put those in our head, advertising puts it in our heads that this is the answer. This is how you’re going to save money. And it’s really simple, there’s no complex conversation to be had, it’s just, here’s your answer. And I think the important thing goes back to what you were talking about, Tom, is that it is a complex and you need to have a partner that’s going to sit down with you and say, “Here’s the complex situation. Here’s the math, here’s the math on this side, here’s the math on this side. Let me show it to you to show you the numbers we ran and how we came to this decision about what’s best for your company.”
Tom: Yeah, absolutely. It’s about getting to the truth. It’s not a perception. It’s not a marketing story or a spin that’s been fed to us from that perspective. It’s, what’s the fundamental truth of the environment? And don’t get me wrong, I’m not saying that cloud is bad. In fact, I believe that every organization needs to be in a hybrid environment where they’re taking advantage of some cloud resources and some local resources, that is the best of both worlds. What’s important is to identify where and how to put those resources so that you maintain what I describe as CFO control. When you end up in a pure cloud environment, the CFO loses control because if you’re cranking away on the servers and it’s up there, it’s like a utility. It’s spinning the meter and you’re paying for it all the time and the CFO loses control.
So as long as we’re looking at it through the lens of the truth and what are the outcomes that we want, there’s a way to take advantage and take the capabilities of the cloud environment because man, it can do some amazing things, but there’s also some resources that make sense to make a one time investment or that CapEx CapEx investment into so that you don’t have the meter running when you don’t want it to be running. Or, so that you how to shut things down or you know how to gain control on those. And that’s that sophisticated strategy.
So we don’t walk into it lightly. Paul Dippell on our board describes it as saying, “Unlike actual clouds, moving to the cloud is not weightless.” And I think that that’s very true when companies consider these opportunities because there’s exciting things and there’s things that are really expensive. And so it’s kind of spending the time creating a three, five year technology strategy and budget strategy around that to make the best decision for the organization. And ultimately that comes to the owner, Board of Directors, but they have to know the truth and not just the perceptions.
Todd: Yeah. And like you said, I think it really comes down to the truth. I mean, we’ve had this conversation regarding IT in terms of internal IT versus outsourced IT. And that’s where really JMARK shines a lot is that, we go into this situation, we don’t say cloud or on-premise, we look at the problems and determine a solution that often encompasses both. We don’t go in and say, “Fire your IT people and hire us.” Sometimes it’s, “Keep your IT people and have them do something else and hire us to do this thing.” Sometimes it is, “Your IT person doesn’t know what he’s doing, let us come in and help you with that.” And that’s where the rigidity of so many MSPs is frustrating because they get in this habit of, “I got to sell this product, I got to sell this service,” and they don’t do what’s best for the client and create a solution that that is best for them. And it’s kind of painful, probably a better word to describe it, but it’s hurtful to see organizations are stuck because they had some IT company that just kind of screwed them.
Tom: Well, and that’s what is so important about having the, what we describe as, courageous conversations, because we want to make sure that a business owner or business Board of Directors, whomever knows all the facts, knows that truth about the environment and the commitments that they’re making, and here are the positives and the negatives. And if people don’t have the courage to be transparent about those things, then there’s a problem fundamentally. And so when we lay those things out, we want to make sure that our clients and our prospects know exactly what they’re committing to, for what period of time and what the ramifications are in different circumstances. So there’s no surprises. Surprises piss people off. And so we want that transparency from the very beginning
Todd: And getting back to what we talked about at the beginning, where do we go out of this situation for the next nine to 12 months? Unfortunately, there’s no solid answer. There’s no specific answer. It just depends on the situation. It depends what you’re trying to achieve. It depends on the assets that you have and the sources that you’re consuming. But based on all of those things, the right IT vendor can come in and design a strategy that can help you not just survive, but thrive through the current situation and whatever comes next.
Tom: Absolutely. It’s unique to every business. It’ picking a car, it’s picking clothes. It’s whatever you want to describe it as. Every organization has its own personality and expectations and if you don’t have appreciation and respect for that personality, then making any recommendation is going to be wrong. It’s incumbent upon the partner, the IT partner, to step in, learn those nuances, learn those personality traits and help an organization to develop a strategy. And once you understand that, it’s easy to execute. It’s just understanding all the components and complexities within the business or the preferences around cashflow and OPEX and CapEx and how people want to, tax burden and all those things that we’ve talked about. But once you understand them, then there’s clarity and it’s easy to develop a strategy that supports the business in the most effective way.
Speaker 3: So what does this all mean for budgeting and planning in light of COVID-19 for the coming months?
Tom: Yeah. Well, the first thing that we have to do is get a picture of what was planned. So what assets in an environment were scheduled to be replaced over the next couple of months, or even the next couple of years, and then determine, can we extend that? Should we extend that? Does it create unnecessary risk in the business? And then deciding, okay, if we take this asset or this capability, and we shift it to the service, does that serve the organization more effectively? Or is it no, no, no, no, we need to make this system, a server as an example, we need to get an extended warranty on it and spend hundreds of dollars instead of thousands of dollars, and sure it’s not going to be as fast and there may be a little bit more risk, but it’s still under warranty and we can get parts the next day.
And so it’s really understanding what the risk is in the environment and then what’s going on in the business. There are some organizations right now that are in kind of survival mode. It’s like, “Oh, I need to manage cash. I need to reduce my expenses,” and do those things. There’s others that are thriving right now and so we have to understand what’s going on in the business and what they’re expecting over the next 12 months, and then customize that strategy to support them in the best way.
Todd: It also depends on what they want. There are circumstances where it’s more valuable to spend more money to create a strategy that you’re innovating towards in a situation like this. And part of that is, essentially what you’re doing is you’re spending to create the innovation that you have to accomplish in order to potentially survive or adapt your business to whatever has to be done.
Tom: That’s a really good scenario. I mean, what we’re talking about is the shift that’s going to occur. Where people have invested in the last 12 months is not where they’re going to invest in the next 12 months. I mean, look at what we’re doing right now. We’re located in different states. We’re on this video call. This is going to be a new normal, and most organizations don’t have good video conferencing situations where they can take somebody who’s working from home and blend them with somebody in the conference room and create a good experience so that they can still get everything done that they need to get done. And so companies, instead of maybe buying the server or the workstation, need to now invest in video conference solutions and capabilities so that they can facilitate this new normal and what does it mean to meet the client where they are so that you can do a good Zoom call and make sure that if I’m a lawyer and I want to now see my clients remotely, do I have a good experience? And can I do that in a way that’s meaningful to them?
So we’re going to see some shifts in the budgets as it relates to organizations that have to facilitate meeting the client where they are and delivering services in new ways. And that may be innovation, or that may be just the implementation of an existing technology that they’ve not used yet. Whatever that may be, it’s going to shift as a part of it. And again, it goes back to that personality of the business and understanding what they need to achieve over the next 12 months, and then weaving that in to the business capabilities and budgets.
Todd: Yeah. And I don’t think it’s a question of if it’s going to shift or when it shifts, it’s already shifted. We’ve talked about this in other conversations that digital transformation has accelerated massively in the last couple of months. And looking at technology, moving forward can’t be the same as if you looked at it before. You have to look at it in a whole different light, because the way you did things before are potentially completely different with a distributed workforce. You may have to figure out more digital solutions, whether that’s online storage or whether that’s more secure VPNs or whatever solutions. There’s so many different things that come into play with a hybrid model of some people in an office and some people working from home that a lot of companies just are not thinking about it. I mean, even the phone system, we’ve called on companies who the answering voicemail says, “Sorry, but our phone system doesn’t transfer to home, leave a message and I’ll get to you when I get the message,” and that’s that.
Tom: I think the company’s ability to evaluate how easy it was to shift during this tells you about the maturity. Was it an easy shift? Was it a painful shift? I mean, there’s lots of things associated with that, but now that they know that truth, they can use that in order to empower the business moving forward, because it’s a guaranteed outcome that we’re going to have a lot more people working from home than we’ve ever had before and we have to build secure technology solutions to facilitate that. And so it circles all the way back to those preferences of OPEX and CapEx and how do you facilitate all of those things is a part of that strategy. And now the strategy is totally different because the world has shifted and where you invested yesterday is not going to be the same that you invest tomorrow.
Todd: And this is where we have to come in and you got to look at your IT vendor because you need a partner that can be there, because you went into business for a specific reason, you went into business to help people, to heal people, to protect people, whatever it is, that’s what you went into business for. That’s your expertise. We’re not suggesting that you just change your entire mindset and go back to school and learn how to run technology. That’s why it’s so important, especially during a time like now to have an IT partner that can guide you and deliver you through that situation and help you out.
Tom: Yep. I couldn’t agree more. It’s an area where I’m proud to say that we’ve invested more in the last few years than we ever have in the company’s history. And that is around that relationship management, that strategist who comes in, learns about the business, gets an appreciation for what the future holds, how to support the customer of the customer and make sure that that aligns with the expectations and the budget capabilities of an organization. And it takes somebody to learn the business, to learn the clients, to learn those preferences to do it. And we’ve got a whole team of people who specialize in that with another team behind them that handles the geeky engineering pieces to make sure it’s delivered in the right ways. It’s a special combination to be able to come in and make it so that a company can go, “You know what? We need to work from home tomorrow.” Boop, done. “Okay. Everybody see you there.” And when that capability exists, it means you’ve done a good job designing the technology infrastructure.
Todd: The other thing you mentioned before, Tom, that made me of this is in an IT company or an IT solution that’s being proposed, make sure you’re working with people that are willing to say no, that are willing to say, “Yeah, your strategy is completely off-base.” And maybe it’s done in a much nicer way, or much more direct way, who knows? But the point is that we’ve seen, for example, companies that we’ve gone up against with different prospects where they will take this low price solution from another company for a massive complex network or company. And we look at it and just laugh because it is this tiny little company with a few engineers that is going to fail because they can’t handle everything. They weren’t willing to say, “No, we can’t do this.” And that is so important with JMARK and such a light in my mind, because we’ve gone to those companies really big and nice looking opportunities and we said, “You know what? We’re going to have to step back because this is a little bit too ugly.”
Tom: Yeah, absolutely. And it goes to the truth, the courageous conversation, because you have to be willing not only with the client in saying your strategy is crazy, or that’s not a good way to handle that, but you have to have the courageous conversations inside the organization because when you take on a situation like that, then that organization consumes way too much energy from the IT provider. And then, the IT provider lets all their other clients down. And so it’s knowing your target client profile, it’s knowing where you can be successful and making sure that you don’t try to bite off more than you can chew. And that’s exactly what a lot of organizations do. It’s getting comfortable with no, getting comfortable with the truth. And if you try to fight the truth, you’re always going to lose. And we learned that many, many years ago. And so we focus on that truth once and for all.
Todd: Absolutely. And I think that’s a great place to end. We’re definitely in a crazy time and we hope that everybody listening is doing well and thriving, but we’re sure there’s that people listening that are really struggling and IT really is an enabler that can help you be successful. And it takes a company that is willing to say no, it takes a company that’s willing to listen to you. It takes a company that’s willing to understand your situation and help you. And it takes an open mind to really understand whether you’re better within OPEX situation or a CapEx situation, or whether your current technology can be used for something that it wasn’t intended to or can be used longer or if there are services that could be adopted.
And so of course, with everybody, we hope you are thriving through this situation but if we can help answer any questions or do any assessment to understand where you’re at to help you with the strategy, please give us a call. Visit us at jmark.com and give us a call and fill out a form and we will engage and hopefully help you through the situation. Thank you.
Tom: Thanks, see you.
Speaker 1: Thank you for attending this podcast. We hope it has been informative and helps convey that at JMARK, we are people first and technology second. To learn more and discover additional content relevant to your business please visit us online at jmark.com or at LinkedIn, Twitter, Facebook and Instagram. You may also call us at 844-44-JMARK. Thank you for your time and we look forward to seeing you again.