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The big squeeze

These are challenging times for smaller IT support companies being hit by price rises, unexpected surcharges and onerous minimum spend requirements, as Dave De La Haye, founder of FOIT Ltd, explains to James Goulding

FOIT Ltd is typical of the thousands of IT support companies that company founder Dave De La Haye describes as filling the gap between the time when a small business is set up with the help of ‘some guy who knows a bit about computers’ and the point at which it recruits a dedicated in-house IT expert.

“Most small businesses start out realising they have a requirement for IT, which usually ends with someone saying ‘I know a bloke down the pub who’ll be happy to set up your computer and printer and stuff’. Then, as the business grows, it finds it starts running into all sorts of problems because it hasn’t got a cohesive IT strategy. I pitch myself as a solution provider for growing businesses.

“We do the whole gamut of IT and communication services for small businesses: we do cloud services, which includes managed servers; we do IP phone solutions – we’ve got our own VoIP servers; we do desktop and server support; we include software support, licensing, backups and security as well. It’s a whole smorgasbord of services that any business will require.

“Using FOIT really makes sense for our clients. I’m not going to be in their office all day doing IT; they just pick up the phone and talk to me when they need me, or I can plan projects and maintenance over a period of time. They’re not paying for a full time IT guy, but they’ve got somebody always available who knows their systems and is au fait with what they’re doing.”

Dave De La Haye started FOIT, formerly known as Farm-out IT Ltd, as a sub- contractor, providing IT support for a managed services provider (MSP) based in Southampton, while also building his own customer base. When that MSP eventually stopped trading, FOIT took over its client base.

Today, the company has around 35 customers mainly in North London and Southampton, ranging from one-man bands to major service providers, including a sporting goods warehouse and a scaffolding merchant. Dave De La Haye provides all the support himself, occasionally calling on a consultant he knows for third line escalations and project work.

Smaller companies like FOIT fulfil a vital role for growing businesses by taking on the burden of IT support and, in some cases, providing valuable strategic IT advice so that clients can focus on core activities. However, De La Haye warns that the actions of suppliers and wholesalers are putting the squeeze on smaller IT firms and making it harder for them to compete in the wider market.

“As a smaller company with a small customer base, you’re shut out of dealing with the big suppliers. They don’t want to know. So you go to the wholesalers, the guys in the middle, and even they are now starting to get choosy about who they deal with. They’re becoming a bit discriminatory if they can’t see you generating loads of business.”

De La Haye points out that this is a problem for a company like his because, although he has 35 customers, not all of them will take every one of his services. For example, only 10 of his customers require a broadband connection from FOIT, as most have existing arrangements with other suppliers or a leased line.

“I can’t go to BT direct with 10 connections. Nor is that not an attractive proposition to the broadband wholesaler,” he says.

“The other thing about being forced into using wholesalers is that there is a man in the middle wanting to make money somewhere along the line, which means the end reseller has no way of taking advantage of any decent pricing from the actual service providers. I’m never going to get broadband at the price the wholesaler gets.

“If you try and sell it as a reseller, you can’t make any money on it because you can’t compete with the prices quoted by very big resellers that are able to sell vast quantities of the product and take a smaller margin. When somebody asks why my broadband costs £6 or £7 more than the average, I have to explain that it’s because it’s a business broadband service, with a better service level agreement and a faster response for support.

“IT services for small businesses are very price-driven and when businesses see you can go to Plusnet or someone and get a broadband circuit for about £20, they say ‘why am I paying you £36?’. I point out that they’re paying for a service, not just a broadband connection, but it does make it harder to sell and you do end up constantly having to justify your prices.”

Account surcharges

De La Haye adds that some wholesalers are now rubbing salt into the wounds
of smaller IT companies by applying surcharges to the accounts of customers that are not growing in line with their expectations.

He cites an email he received from cloud services distributor Giacom on
July 27 outlining updates to its Reseller Agreement including the right to charge resellers a £100 per month service fee on the basis that ‘it’s not sustainable to provide this high level of service for customers with a very low level of spend’. The message goes on to say: ‘If our offering no longer meets what you require or you are just looking for a way to procure a low volume of licences, we recognise that, unfortunately, we may no longer be the right provider for you.’

De La Haye originally decided to use Giacom’s cloud marketplace to consolidate his licensing for cloud services, for antivirus and for backup solutions, which meant he wouldn’t have the inconvenience of paying several different suppliers. However, with this new surcharge he is now making alternative arrangements.

“That financial squeeze is untenable when all I’ve got is half a dozen 365 licences with them and a good few Bitdefender licences. It would literally double my costs to Giacom, so I’ve just moved all my Bitdefender licensing across to Atera, which I’m now paying for as part of my Atera subscription to their CRM and RMM. I find it a really useful tool and the great thing about it is that with Atera’s licensing model you have a licence for your user, not for each of the endpoints, so I pay one fixed price to use the service and I can add as many endpoints as I like at no extra cost.”

Two years ago, FOIT experienced another penalty faced by smaller IT service companies, minimum monthly spend commitments, when Simwood, which provided the trunk line for its VoIP services, increased its minimum monthly spend from £100 to £250.

“I had to move away from Simwood when they put up their minimum spend by £150, because there was no way I was going to put that amount of money on the trunk every month. I moved to aql, where my trunk costs are about £100 a month.”

More recently, FOIT’s broadband supplier has thrown sand into the gears
by shifting FOIT’s payment terms from 28 days to 14 days, putting it out of kilter with customers’ payments.

While De La Haye has been able to find alternative suppliers that are perhaps better suited to FOIT’s requirements, he still resents the time that he has been forced to spend on identifying providers that are happy to support smaller customers.

“It has cost me an awful lot of time that I could have spent selling to clients, which is what I desperately need to do at the moment, with margins being squeezed ever further and prices going up. My datacentre costs are going up by 12% at Hetzner. I haven’t seen Microsoft drop their licensing prices lately; there’s no back pedalling on service costs. It costs me X amount of pounds just to keep the lights on and heat the office. Utility prices are going through the roof. And for these companies to turn around and ask for extra cash just for the pleasure of doing business with you is another blow.”

De La Haye is reluctant to pass on these added costs to customers who will be facing many of the same pressures he does but fears he won’t be able to put off price rises for much longer.

“It’s now getting to the stage where I have to consider putting at least 12% on my prices to my clients, and I’m not the cheapest service provider by any means so it’s going to make me uncompetitive compared to some of my rivals.”

Stop discrimination

So, what should vendors and wholesalers be doing to make life easier and fairer for the thousands of small IT companies like FOIT that exist across the UK?

First, says De La Haye, they should stop discriminating against small resellers by applying minimum spends and surcharges to small accounts. Second, they should offer attractive terms for new technologies like SoGEA (Single order Generic Ethernet Access), which BT Wholesale currently only provides on a one-year contract.

“If they want us to get clients off FTTC and onto SoGEA, businesses like me are not going to be able to do it with one- year contracts hanging over our heads,” he explains.

“At the moment I provide broadband on a monthly contract, which is very attractive for small businesses – and for me because small businesses have a failure rate of something like 60% to 80% in the first three years. If I was to provide broadband on a one-year contract, as my provider asks me to do with SoGEA, I would be locked into providing that service for one year and would pay for it even if my client went bust. There’s a high degree of risk in providing services on long-term contracts to the kinds of company that I deal with.

“One-month contracts, with the ability to cancel at any time, are also a selling point for the customer. If I can’t offer that on SoGEA, which I can’t with all the service providers I’ve gone to so far, why would I choose SoGEA rather than a one-month contract for FTTC broadband. We’ve got to go to SOGEA eventually, with the 2025 switch-off, but how am I supposed to do that when I can’t offer my clients a one- month contract?”

Ultimately, the future success of smaller resellers and IT support companies will depend to a great extent on the choices made by wholesalers. For as De La Haye says: “We’re beholden to wholesalers, so the wholesalers have got an awful lot of power. If they want to change things arbitrarily, we’re stuck with it, because we’ve got nowhere else to go.”

Giacom Response

Responding to De La Haye’s criticism of its £100 service fee, a spokesperson for Giacom said: “We have a very diverse partner base, from businesses spending £1 to those spending millions of pounds, and we’ve always strived to provide them all with the same level of ser vice. This hasn’t always been easy, especially with factors like NCE, where we saw more tickets raised in one day than we’d previously had in a month. This ultimately detracted from our partners with whom our proposition is a great fit, so we took the uncomfortable decision to apply a small charge to those spending small amounts.”

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