This post was copied from a website I used to maintain called How I Built My Business. It’s now here for posterity.
Company: IT Now
Years active: 2000 (purchased)-2007 (sold)
Location: Orem, Utah
Business Builder: Jeff Watson
HIBMB: How did you become interested in computer support?
Jeff: I had been in school studying graphic design and headed out to a summer sales position selling pest control. I recently got married and quit flying radio-controlled helicopters because it was expensive. I traded the helicopter for two desktop computers which, back in the day, I felt like I was getting a pretty good deal because the computers were about $500 each. They were Pentium 2 I believe. I was interested enough to play around with them, load up an operating system, see what they could do. It was pretty easy to break them, tear them apart, and put them back together. I almost became addicted to it. I think the learning is what got me.
When we came back to school, I went and interviewed at Totally Awesome Computers. They asked me a bunch of questions to see if I knew what I was talking about. I knew a bit and there were some name brand computer boxes on the inventory rack behind the guy who was interviewing. When they asked me a question I didn’t know the answer to I’d look back there and be like, “Uh, yeah, I like the MSI brand. That’s pretty good stuff.”
They could tell I didn’t know enough to actually be a tech so they hired me as a sales guy. I worked that job for four or five months until my semester shifted. I couldn’t work there anymore so I interviewed to work in IT support at BYU. I knew just enough at that point that they hired me. I think I got hired at over $10/hr way back then so it was really good. I think $6 or $7 was minimum wage at the time.
The job wasn’t managed very well so I didn’t actually have to do much tech support. I ended up just goofing off playing with computers while I was there and learning more and more.
Two or three years later I was graduating and planning on doing inventory purchasing at Best Buy or a similar company. One of my classmates was more of a nerd than I was and he had started a computer repair company. He would pull viruses off people’s computers or fix their DSL. Most of the customers were families or grandparents that didn’t know what they were doing. He had maybe 50 customers who called him for help.
My classmate was leaving the state and said, “Hey, I need someone to take care of these customers and was wondering if you want to do this.”
I said, “Well, I don’t really have a job yet so sure, I’ll take it.”
He said, “Okay, but you’ll have to buy it from me.”
I said, “How much?”
He responded with, “Maybe $1,500?”
We settled on a deal where I would work with him for a week or two and then I paid him $500 in cash. He was probably just going to give it away somewhere anyway.
HIBMB: So how did you end up turning it from that into a full business?
Jeff: I think this will be an ongoing theme: if you can do a satisfactory job‚ not even an impeccable job‚ it will grow and will never stop growing. When I got called to these places I could always fix the problem so they would recommend me to their neighbor or their mom. Eventually, they would start asking if I could fix stuff at their office. So I took those 50 residential accounts and pretty quickly got 2 or 3 business accounts. That grew into 10 to 15 business accounts.
I handled the accounts myself until I just couldn’t physically handle all of them anymore. I put out an ad to bring someone in that was nerdy like me. I usually hire people who are like me who don’t have much training but have a gift for learning. I eventually hired someone who didn’t have any training but was bright and could figure out anything.
He and I would split up the work and go do it. I was the boss but I let him come on like an equal partner. I never treated him as an employee.
Eventually we had maybe 50 businesses and were trying to figure out how to get rid of the residential business. We’d give them away to other people or sell a big group of them to other companies that still dealt with residential customers.
We started to see that we could charge residents $35/hr and charge businesses $65/hr. As we got better we could raise the business rate to $75/hr and thought we were pretty special.
HIBMB: Did you hire any other employees?
Jeff: Yeah, we eventually brought on a tech and then the paperwork got overwhelming so we hired a secretary. We ended up with about eight employees.
I’m a cheapskate so at the beginning we were working out of the shed behind my house. After the shed, we moved into a basement office with no windows. It must have been something like $350/month. We ran it out of there for a couple years until it was insufficient. Then we moved upstairs to a bigger place.
It was always very organic growth. We never tried to put a bunch of money in or grow a lot or land a huge client. There was never any thought about growth. It was always about answering the phone and doing a good job.
HIBMB: Did you ever do any marketing then?
Jeff: In the very beginning I did some door flyers. That’s how the previous owner had built it so I did some of the same. We took out half-page ads in the Yellow Pages as we started to grow.
HIBMB: How did your business model change over time?
Jeff: Toward the end we started moving to a managed services model. It was actually more difficult for me to deal with because it didn’t sit with me as a great value to the customer.
HIBMB: Why wasn’t a managed services model a great value?
Jeff: Managed service providers are people who come in and want to write you a contract for IT services instead of hourly. In the contract they’ll promise proactive services. For example, you won’t get viruses because we’re watching out for you and we’ll watch your firewalls and this and that.
The truth of the matter is that you sell all that stuff, you get monthly contract payments, and then you automate it. It’s a gravy job. You just make it appear that you’re still physically doing important things. That’s how a good MSP works.
Honestly though, the companies who were more reactive than proactive and just paid to have a provider come fix things as they happened end up paying far, far less.
We ended up growing toward the managed service provider model. We never really got good at it.
Eventually the first guy I hired on asked for more money than the company could support. He left the company and took a good chunk of customers with him. Technically he wasn’t supposed to but I wasn’t going to fight him on it.
I had probably run the company for six or seven years before that happened. That situation, losing clients, and losing his help stressed me out so I marketed the business for sale.
HIBMB: How did you market the business for sale?
Jeff: I hopped on the internet and looked up company valuation equations. I asked for somewhere around $100,000 and that included the clients, the suite, the furnishings, and the phone numbers.
Six months later, the guy that left came back with the company he had moved to and made an offer to purchase the business.
It was about the luckiest thing that could have happened. Because it was him, he knew my entire business and I didn’t have to stay for one more day to tell anybody anything. I think they ended up offering me $40,000 in cash and then a certain percentage of the money they made off my clients for the next three years.
I had never built the business in an attempt to eventually sell it one day so the $100,000 was a bit of a pie-in-the-sky number to see what would happen. When they put hard numbers on the table and gave me a way to exit I took it. My stipulation was that I could keep one customer: Utah Radiology.
I had gone from servicing the client’s home, to the business, to their other business units, and so on. I had built this little microcosm inside our business.
HIBMB: Why did you make it a point to keep them? What was your intent moving forward?
Jeff: I had such a good relationship there and they were growing. I had talked to the COO enough that they had said that if I ever wanted to work for them full-time they would be interested in discussing it. When I started marketing the business I actually went over there and said, “Okay, let’s talk numbers.”
They gave me a concrete offer because I had done a good enough job for a number of years. Note that I didn’t have an education in IT. My major was marketing but they didn’t care because they had the proof.
It was perfect timing. I was like, “Yes, you may have this business. Yes, I will take this job.”
The last cool thing that happened is that about six months into my job at Utah Radiology is when the bubble burst. Everything in IT went to pot, but healthcare never struggles. I was in this sweet gig with a consistent salary that I didn’t have to worry about. I just had to fix problems and I felt like I was the luckiest person on earth.
This job was a continuation of my theory that if you do an acceptable job it will continue to grow. It again started out as just me. Then a couple years we brought on another systems manager and then another. Really it’s the same type of stuff I was doing but it’s more stable and reliable work.
HIBMB: What was your company’s name?
Jeff: The name of the company was OSCR (or On Site Computer Repair) when I purchased it. We renamed it to CPCS‚ a cute acronym for Computer Problems, Computer Solutions. I think I was just marketing to the grandparents at that point. What does grandpa need to see? “Computer Problems, Computer Solutions‚ that’s what I need!”
After about five years we renamed it to IT Now which is a lot more sexy and has a business feel. It had a logo that I loved. When I sold it, the company that bought it was Oscar On-site Computer Repair but they dumped their name and took on the name IT Now.
HIBMB: So does it still exist as IT Now?
Jeff: Yeah. I bump into the owner every now and then and he’s built the company and has done really well for himself. They pushed the managed services model and continued in that direction. It’s fun that they’re still alive.
HIBMB: If you don’t mind me asking, what kind of revenue was your company bringing in?
Jeff: I’m not sure I remember exactly. When I was starting out I was probably making $20,000/year. When I sold I was probably paying myself $80,000/year. I never really had a set salary. I just paid myself whatever I needed to live and kept it pretty lean. Everybody else had hourly rates. As a company we were probably making around $400-$500k per year.
HIBMB: Do you have any tips for someone thinking about building a computer support business?
Jeff: There are really two ways to build the business and you have to figure out which way you’re going to go.
One is organic growth‚ be frugal and build it piece by piece.
The other way is the entrepreneurship idea. This is the kid who says up-front that we’re going to be a managed service provider, be a $5 million company, run it for five years, and sell it for $15 million. That’s probably the right way to do things if you’re in business to make money.
I wasn’t really in business to make money. I was in business to live and putz around. In order to go the entrepreneurship route you plan it all before day one‚ business models, financial models, sell it to venture capitalists. Someone pours three or four hundred thousand dollars into it. You get a bunch of clients and get accounting to make sure you’re on track. The people who do it well exit and turn around the next day and start up their next venture.
Focusing on the exit is brilliant because that’s where you make meaningful money. Having gone through it like I have, that $40,000 I made when I sold the business did more financially than the previous 20 years did. Now in the previous 20 years I may have made a half million dollars but I spent every bit of that. It’s those one-time lump sums that make you set financially. Even so, I think entrepreneurs get addicted to the process and just keep doing it again and again.
Figure out what kind of person you are. Usually the entrepreneur is not the tech. I was the tech. The entrepreneur should be focusing on building the idea, pushing the agenda, and making money at the exit.