Diary Of A Cloud VAR

Running a managed service provider business these days requires a leader to be quick, flexible, and ready to scale programs up and down to meet market demands -- qualities not unlike the technologies and services MSPs are now offering customers.

These solution providers are trying to succeed in a market undergoing breathtaking changes, as cloud computing compels them to transform their business from installing legacy systems to providing hosted services.

As a result, new partnerships need to be made, new technologies mastered and new services developed, all while keeping the day-to-day business running.

In addition, solution providers are being snapped up as a consolidation craze is sweeping the industry. Large MSPs are seeing a clear field to expand their customer base and geographic reach through acquisitions of smaller companies. Smaller solution providers are easy prey, but at least the payout can be good.

In this market, Paul Hilbert, co-founder and owner of Network Doctor, has his hands full.

Hilbert, along with partners David Birk and Rafi Moskowitz, started the Englewood, N.J., company 10 years ago in Hilbert's basement. The partners started offering in-home installations and repair services, much like Geek Squad, which they initially imitated.

The company has evolved to provide hourly services, time-block services and, most recently, recurring revenue services. Since 2009, Network Doctor has offered cloud services over VPNs hosted in its own data center.

The company has expanded its services to become a full-service MSP, supporting technology partners such as Microsoft, Google, Citrix, VMware, Dell, Hewlett-Packard and Cisco. Network Doctor now employs 35 people and in 2012 saw revenue reach $5 million.

Hilbert is now betting that the cloud will change everything, and he plans to ride that to success.

But as the cloud is disrupting business models, Hilbert is disrupting his own business. He's constantly scaling up his company's services to offer new applications as well as hosting services, in addition to his traditional duties.

The result is steady growth but incredible demands to juggle his clients' needs with rapidly changing technologies. On any given day, Hilbert is performing a score of duties to keep his company ahead of the curve.

CRN followed Hilbert for three months to see how he was managing his business challenges. Hilbert showed he is at once a technologist brimming with new ideas, but also a businessman constantly tending to his growing flock of customers.

What follows is an up-close account of Hilbert's activities.

NEXT: Dec. 6

DEC. 6:

Hilbert has several issues on his plate. One is the continuing work Network Doctor does with email hosting, an evolving specialty influenced by Google's cloud email offerings. Network Doctor is a Google Apps provider. However, Hilbert's email business might run counter to Google's email road map, and Hilbert is trying to be careful.

Network Doctor offers email management to thousands of customers through email security company Postini, which Google purchased in 2007. Google said it is transitioning the Postini service to Google Apps, but Hilbert would like more assurance and communication from Google about what's going to happen.

"Our first cloud service was Postini," Hilbert said. "We manage over 10,000 mailboxes through Postini. Since Google took over, it's been a little bit of a mystery about Postini's future. We get emails that Google is dropping Postini, and we're not sure what that means for clients. It seems they are trying to move it to Google Apps."

Hilbert has decided to use another email program, called Spam Soap, an integrated offering that uses McAfee email encryption technology.

"So we are partnering with Spam Soap for hosted email security," he said. "Google doesn't seem to care."

Another important issue for Hilbert is the size of his hosting facility, which is used to power his cloud service. Network Doctor has been offering hosting for four years, and his data center is no longer big enough, he said.

He's looking for a good price, a company with a facility that matches his needs, and a hard-to-define feeling that the relationship will work.

"We're shopping for different providers for infrastructure," Hilbert said. "I'm at 85 percent capacity for my data center so I'm looking for third parties."

Part of the responsibility in hosting services is to ensure a seamless integration of technologies -- not always an easy task.

While these issues demand his immediate attention, Hilbert said he's also focusing on capitalizing on demand for Network Doctor's services created by Hurricane Sandy in October.

Many companies that lost services during the storm are now interested in having their assets hosted off-premise by Network Doctor's cloud network. They're looking to improve their disaster recovery capabilities, which Network Doctor's cloud services provide.

During the hurricane, Network Doctor's data center kept services running for customers, and its staff contacted about 100 customers by phone to make sure their IT remained up and running. Now, Network Doctor is planning to hold a lunch in New York City later this month for about 30 prospective customers to explain the benefits of the cloud, including disaster recovery.

NEXT: Dec. 13

DEC. 13

Today, Hilbert received an acquisition offer for his company from a national IT services company, which he does not want to name. The offer is flattering and seductive, with the promise of a cash payout.

"M&A is very hot right now," Hilbert said. "There are a lot of companies looking to consolidate MSPs."

Mergers and acquisitions have picked up, with larger MSPs such as cloud services provider GreenPages Technology Solutions, Kittery, Maine, extending its geographic reach and technical expertise by buying Atlanta-based cloud MSP LogicsOne, while Cloud Sherpas, a Google partner, merged with GlobalOne, a top Salesforce.com integrator.

The consolidation trend is undeniable, as it is becoming increasingly challenging for small solution providers to prosper.

"They offered five times our profit from last year. They would give $3.5 million in cash and $1.5 million in future profits," Hilbert said.

The offer was tempting, but Hilbert said wants to maintain control of his company.

"I would have had to give up ownership. They take 55 percent of the business, but we keep working. It sounds good, but when you drill down to it, you give up everything you're working for," Hilbert said.

While the buyout offer was enticing, another business deal involving his wish to expand his data center is making more sense, Hilbert said. To solve his need for a larger facility, Hilbert now said he's in talks with national telecommunications company DynaLink.

Based in New York, DynaLink offers integrated voice and data services over VPN, MPLS, T1 and POTS lines. Hilbert sees DynaLink as offering just the right services, with a large upside for future growth.

"Dynalink is a telco provider, a reseller for T1, Internet and private lines," Hilbert said. "They realize the telco industry is diversifying, so they are interested in offering services. They built a data center a year ago. Now they want to diversify.

"They are willing to buy the hardware. They have a data center, so they could save us substantial costs," Hilbert adds. "They are a national seller and they could resell our desktop services. It's an interesting opportunity for us."

NEXT: Feb. 6

FEB. 6

During the Christmas holiday season and January, Hilbert spent time meeting with customers and planning for 2013.The Dec. 20 lunch meeting in New York with about 30 prospective customers was a success, Hilbert said. He thinks he will be able to add several companies as customers, including Aisling Capital, a private equity fund investing in life science companies, and Holsted Jewelers, on online jewelry retailer with a national reach.

Hilbert also is still looking for more data center hosting options for Network Doctor. In addition to DynaLink, he's talking with Artisan Infrastructure, a cloud Infrastructure-as-a-Service provider.

"We have a little more capacity in our current facility, and as we outgrow it, we'll put capacity in other infrastructure," he said. "When we run out of space, we could put it in Artisan Infrastructure."

At the same time, Hilbert is fine-tuning his Google practice with client Bloomsbury Publishing, with offices in London, New York, Sydney and New Delhi.

"We've been actively looking at Google Drive for file space in the cloud," he said. "Our hosting customer, Bloomsbury Publishing, has purchased a company that has 4 terabytes of data to store.

"We charge $2 per gigabit. I said to them, 'Are we going to $8,000 a month on top of what you pay now? To raise a fee by almost 50 percent doesn't make sense in the current financial model you signed up for.' "

Hilbert told Bloomsbury about Google Drive.

"I told them Google will host them for $200 a month. I said, 'Why don't you stick it up in Google?' The customer liked that. I could charge $8,000 a month for just file storage. But they don't need to spend $8,000 a month, just $200. They loved the hosting model, so it's a good way to go.

"We were able to leverage our private cloud platform along with the cost-effectiveness of Google's public cloud," he said.

Despite all the seemingly never-ending changes taking place with Network Doctor, Hilbert continues to look for new business opportunities. He said he can use even more partners to create more deals if he can find the right fit.

"One of the things we are looking at is the opportunity to outsource project work," Hilbert said. "I've met with a couple of companies. I'd like to meet a guy who is a real star."

FINAL NOTE

Even though Hilbert's schedule is filled, he's restless. He's looking forward to the rest of the year and the challenges it will no doubt bring.

"This is an ever-changing business, so we have to keep taking pieces apart and putting them back together to become more efficient," Hilbert said. "That keeps it evolving and keeps it fresh."