Larry Velez, Founder & CTO of Sinu
Born and raised in The Bronx, New York - (where all great things start) Larry survived the mean streets and catapulted forward after attending the top High School in the world, Bronx High School of Science. After earning a Music Degree at NYU, Larry started his career on Wall Street which eventually led to him joining Pseudo, one of the first Internet Dot Coms and a pioneer in Internet Video.
After two high flying venture funded dot com rocket ship rides - Larry founded Sinu one of the first IT Managed Service Providers focusing on Non-Profits and Small Businesses. He is also obsessed with garages and the German cars that often live in them, much to the entertainment and sometimes nuisance of his wife and two kids.
If you’re interested in Sinu's services contact them at: http://www.sinu.com/contact/
AUTOMATED EPISODE TRANSCRIPT
[00:00:01] You're listening to Scaling Up Services where we speak with entrepreneurs authors business experts and thought leaders to give you the knowledge and insights you need to scale your service based business faster and easier. And now here is your host Business Coach Bruce Eckfeldt.
[00:00:21] Welcome everyone. This is scaling up services I’m Bruce Eckfeldt. I'm your host today we're here with Larry Velez who is CTO and founder Sinu.
[00:00:29] And we're going to learn a little bit more about their company and a little bit more about Larry and we're going to learn a little bit about nonprofits which is an area that Larry and his group have done a lot of work in. And we're going to learn how to treat that as a focus treat that as a target customer and we're going to learn the story of how they got there. Larry welcome to the program.
[00:00:47] Thanks for having me Bruce. Great to be here.
[00:00:50] So I would like to start with just kind of learning a little bit more about our guests and learning around their business background so let's just start with those questions. Tell us about professionally what you were doing like how you got into the business you're in. And then we can talk a little bit about the business itself.
[00:01:04] All right well my path was a little bit squiggly I guess you say I started off in Wall Street way back in ancient days. I was there for a while and then I joined to venture funded Internet video startups back in the very beginning of the Internet where now none of this existed. So it was a rocket ship couple of rocket ship rides back to back and be a Hollywood movie about one of the companies. But after that if you may remember after the first dotcom implosion things were pretty grim in the business world and having to having strap myself to two rocket ships. I thought maybe we should try this real big business thing and I started a service business so that's that's what Sinu is. It's a service business where you do work and you get paid for doing work and that's how you monetize the traditional. And that based on eyeballs and you know ad revenue and other crazy crazy matrix so that's been my goal to win that story to get to here. Arizona I've been a Wall Street dotcom startups and now a service business and then try to find the right balance between all those worlds.
[00:02:05] But there's various kinds of business models and I know you've had kind of a history of kind of approaching you from different ways. But tell us a little about the journey on the business side in terms of how you kind of modeled the company how you modeled your services the things you learned over time. I always find that you know people there's always a story there's always a story about how you got to doing the business you do now.
[00:02:23] So tell us a little bit about what you've learned over time.
[00:02:26] Yeah definitely. You know our model. We started a model that's now called managed service provider and we started that term that didn't exist. But having come from a software world and we looked at how I.T. services were being delivered there were basically I delivered on an hourly project basis like leonine law firms. And we thought there was a disconnect between incentives there if you get paid to fix things when they break. The way you relieve them from breaking up. So we took a slightly different take on that and we offered unlimited time unlimited support and we basically charge based on how many humans the company has and we only designate a budget that based on that roughly as a couple of other metrics. Once a company signs up for our service they own us an unlimited basis and we think the incentives are right that way. Since prankish should hurt us more than our customers. So we did them a long time ago. Many services. When we started our competitors know we were crazy. They went oh my god you're going to go out of business how can you promise so much. Oh we did. We did some math and we figured out that this is the right way to create long term relationships with your customers and it's worked out great so far so that's a different approach that we took to this service. And I think it was employees having come from software where you're used to charging on a monthly basis and you don't limit you know you don't give people 20 a tweet a month and then pay them for more like you know does a weird concepts in the software world that still exist and a lot of ways in the service business. We just thought of different ways to monetize it make it more balanced and the right incentives and that's what we've been doing so far.
[00:03:57] And that makes a lot of sense and I think that's always a challenge to a service based businesses is that if you if you kind of look at your pricing and your engagement model from a cost side you know how much time in my putting into it you'll end up in kind of one model. But if you look at it from the flip side you've got to sit in your customers shoes and you say well what is the value on delivering that is often where you can create a lot of innovation in your pricing model. So instead of thinking about well somebody somebody calls to I have to make you know instead for the for the customer is how perfect is the service or how regular is a service provider. Well you know I can do that using a whole lot of people's time and you know fixing problems or I can actually set up the system and set up the tactics to deliver that service you know that can cost me 50 cents or it can cost me 50 dollars. That's my concern. Well the customer really cares about what is of value that they're getting was a service that they're receiving.
[00:04:44] Definitely. And one thing that influenced our thinking was thinking about what's the downside. What's the downside of disconnecting yourself from an hourly model. And we did the math and a lot of people think it's like from the Wall Street world if you trade naked options you can lose your shirt you lose everything you go bankrupt. But we said OK what's the worst thing that could happen and we did a little away and I'll give you insight because I think your audience is different from our I.T. world people. I'll give you a little bit of insight. But really how long would a customer tolerate a severe issue before they basically fired us and we figured out that this is basically three business days so if things broken. One of the summers for three businesses and we're going all in. Putting all our resources into the we did the math and it's about 30000 dollars of cost on our side that before we get fired because they won't let you work on the problem forever. You know if if their smell is down or their accounting system is down for three business days on the fourth day you're fired. I guess I can give you two months to think safe. So that's the downside. It's not like trading naked options. There really is a limit to how much risk areas to the model. And that once we did the math around that and we figured out the limit is somewhere between 30 and 50 thousand dollars of our costs and we would need to invest to go all in on a problem and to fix it.
[00:06:00] We said well you know we will need to make that gamble because in exchange we get a customer for many years that Hazans every month and the lifetime value that is way over 30000 dollars. That was a bit of math we did and it doesn't work everybody so you know we can't really help a company that's less than 10 or 20 people because the costs are too high for us for that and it doesn't make a lot of sense for a company over 500 employees because they have different different needs. And a company that's doing day trading for example might not be a great fit for our model. So there are limitations you can't offer every pricing model to every kind of customer but it helps you start focusing on the customers that see value in what we do and that's sort of why nonprofits love our model for the reasons and we can touch on that at the right time. But yeah as you as you define your model you're pricing your cost well you'll find that it fits well for some it doesn't. And you have to react accordingly.
[00:06:53] The other thing I think it allows you to do is actually figure out how how can I invest in my services and my relationship with the customer to actually not only drive their service up but drag my costs down so that you're no longer thinking about well you know I'm here on an hourly rate and fixing problems actually hurts my margin or hurts my revenue to be hey look I couldn't spend the time and energy to build the systems to build the process is to invest it in the right things that are going to provide for the seamless service. But I'm going to recoup that investment over one two three four five year contracts and customers are going to do that because they like the service.
[00:07:32] Yeah yeah. I'll give you a concrete example. At the risk of getting a little too much in the other design. Wireless has become a big part of the way business is done right. I mean things wireless you know math books and so there's two ways to approach that if you're 90 company you can sell the customer a wireless device and make a mark up market of 20 30 percent. And then you make your money that way. That's one way to do it. So what we focus just like what our goal is to really keep this from our friends many months and many years as possible.
[00:08:01] So we actually give them the hardware for free. We have the revenue to do that. We have enough revenue coming from that customer to cover the hardware costs and included we better keep them happy and their iPhone's connected than it is to debate how much a wireless access device costs and how much are we marking it up or not marking you. So again we think incentives and the conversations are diverted based on how you make money and there's a lot of companies who make money by selling hardware but they think that we think about hardware is sort of the companies it's sort of like you know BMW Mercedes right now. They think the engines they love engines they've had for 100 years. They can't think Tesla. They just can't do it.
[00:08:39] And the same thing happens when you say one thing that's the way you think and when you become a little more creative or change the way you charge it expands your thinking expands your mind of how can we do things differently that maybe liberates us from some of that. Maybe low margin products or conversations that are not productive with the customer.
[00:08:57] So yeah I mean is a little bit of a cliche say here but you know people don't want drill's they want holes in walls right. Instead of thinking about them. There's actually even a great one now where wonder if you've seen this infomercials where it's like a it's like a wire that you've got to push through the wall and it creates a hook you know because people to actually go with Coles and Woolies they want pictures on.
[00:09:16] Right so if you get just like it's not really how are we going we actually just get these pictures actually.
[00:09:21] But now there's ones where you just you go to Instagram and they ship you the pictures with a piece of on the back and you just stick them onto the wall. So as we get to really understanding what the customers really want at the end of the day there's lots of people would do that.
[00:09:34] We should get out of this like we're in the drill business because that's really not what the customers are so right. And I think that's great. And I think that is a lot of the challenge with service based businesses is that it's really easy to look at what's my cost model which might cost structure and how do I look at it as a market model for pricing instead of what is the real value.
[00:09:51] The other thing I like about that too is that once you start of ask you what what what is the value look from pricing based on value and then start to get well what does the customer really want.
[00:09:59] What do they really value here. They really don't care about the access. They don't care about the router. They care about having their phones connected or their graters connected right and there's lots of different ways to do that. So I think that I think that's smart. So I know you alluded to it the fact that you have been working a lot with this non-profit.
[00:10:17] Talk to me a little bit because I think your story about how you kind of got to that it is really interesting and it's something that I end up talking to a lot of companies about and I think it's really a struggle for companies as they start to grow because early stage you. You basically you're kind of chasing money right. Anyone who's got a budget who is willing to pay you for something you're kind of like I'll do that. And as you start to grow it you start to really think about scaling the challenges in it and it's a little counterintuitive. I wish it a faster you want to grow the faster you want to scale the more you need to focus the more narrow more targeted more specific your offering needs to be the services that you're providing to the people you're providing for. And I know that you went through kind of an analysis looking at all the different people that you provide service for and got to this kind of nonprofit. Tell us a little bit about that story and how that played out for you.
[00:11:03] Yes so you know everybody says you should pick a vertical business on a vertical dominated and they say but they will tell you how. How did you get there. You know and some people have natural networks within the OP world and they come from a certain kind of vertical so it's natural. But for us it really wasn't. We had all sorts of customers from architects to hedge funds to marketing consulting firms and modeling agencies we had a lot of different companies. But as we started studying and the kinds of companies now seeing the customer satisfaction the profitability longevity all these metrics of health of the health of a customer. There's something that stood out surprisingly and we started getting a growing number of nonprofits. And when we looked at their customer satisfaction they were were very happy with our service and one thing that surprised us is they really loved our cost model native seven times like I've had a strong debate lawyers and law firms about how our cost model is just just nonsense and like lawyers courts you know they charge many dollars an hour a thousand dollars an hour. Right. So their whole world mine.
[00:12:07] That is the hour and it's no value of hour the value of an hour. So here I'm trying to say hours and nothing forget about the hours and then like no like you hear regarding their world. Yeah yeah yeah.
[00:12:19] So we've actually literally never never signed a law firm. I mean and it could be our cost but I don't know. But not as we had the opposite conversation with where they said wow look listen you know we get grants based on programs that we do so. So Bill Melinda Gates or the Ford Foundation might give us a grant and because you're charging us per person we can easily allocate that grant to those people and then these other 12 people are these other 25 people. So your bill is easy for us to divide into our cost our I.T. cost. Furthermore Bill and Melinda Gates really don't like us to be spending on hardware and want us to spend on our mission. And your service brings all the hardware and all the value that hardware break ins but also adds a lot of the mission focused value proposition that we need around 90. So they just saw a lot of synergy there versus their other option is to hire a bunch of I.T. people in their business plan looks like they're not directly helping their cause right. If it's hemophilia or education in Africa it's hard to justify. So I bought you know they say I want a 10000 server. How do you allocate that across the five different programs they might be doing. So they like accosts motto because it made their life easier an accounting stamp from you know the way they Nady Maliki.
[00:13:31] Let's talk about that one. I think that's a really interesting one it's not the first time I've heard this kind of insight or this in a way in which people create value or or really differentiate the market. Is that sort of the way that the bill or the way they structure the engagement helps the customer with what they need to do.
[00:13:50] And I think the story the story of Spisak remember was a storage company and the way in which they build the customer.
[00:13:57] And literally it was just the way they organized the bill so that it was grouped in the right way that they could and the customer could turn around and build their clients in the right way. Isn't that what got them the job. Because the customer with all these other companies was having to go through and basically Reekie in all that individual Bill items into project codes and account codes because they sold that they gave them a simpler way to build. That was the best thing. So really understanding how does your service fit into the customer's process and the customers operation and their the value they provide. And can you generate revenue yet. Well in this case the way they get money that you know it allowed them to actually you were bundling your service in a way that fit with the way they could get money. It allowed them to get money easier or better and sometimes people don't think about that. Think about just the immediate value of their service like. Are you connected to the Internet. What is the what's the bandwidth is it. What's the up time. They don't think about well what else.
[00:14:54] What other problems does a customer have that we could actually solve by just changing the way we do things. So I think it's a really good one and I would certainly encourage folks to kind of think about that with their service and even product.
[00:15:05] But how does it impact their customers and there are other things they can do to add value. And so I also wanted to go back a little bit. You mentioned a couple of things that I think are important which was looking at your customers looking at your the people that you had been serving and looking at the data. So looking at service responses looking at your profitability looking at the data that you have. And so you guys are textual I'm sure that you know you're kind of naturally predisposed to some of this stuff.
[00:15:31] I'm sure a lot of listeners who are not kind of in the more analytical fields. This may be a little new to them but talk about what data did you look at what was the data that you had about your customers that allowed you to then ask these questions. Okay. Are we doing well and where are we not doing well.
[00:15:48] Right well I I think you touched on a couple of easy ones customer satisfaction. I mean literally just asking Are you happy.
[00:15:54] And how do you do using it. What was the process that you've actually got that feedback from customers.
[00:15:58] We've done it a few different ways. We've actually had third party third party literally call these negatives that our customer and ask where are they. We also every time we help with something we send out a quick like you know survey. So so our reaction teams get surveyed from that every time we finish a project we will be sending a you know sort of a recap of how well did this go. So that satisfaction but then the cost side. It's easier for us to track because we kind of have a ticketing system so every time we help with something we have a ticket and we can allocate a cost based on who. Which team worked on that and then calculate our cost roughly on that. Then lifetime value very into refined lifetime value of a customer and that customer only stays with you for a month or two months.
[00:16:39] But we've had customers that stay with us for our customers and we won us over a decade. And you know average customer has been with us longer than the average marriage know. A long time. So we look at that to lifetime value and all that. So that's a little bit easier to calculate obviously you know when they started you know how long they've been with you. There's also another metric of growth. So for us when a customer hires a new employee that's more revenue for us because we are charging a little bit more. So knowing when a company is growing or shrinking or staying the same is helpful and which sectors. So for example in 2008 we survived an economic meltdown. We had customers that were doing staffing specifically Wall Street staff. They completely collapsed right after that right. And we saw that we saw that a vertical that is very susceptible to the help of Wall Street. So if you focus on only Wall Street's fat staffing companies you need to be aware of where the stock market is because it's going to affect that. So there's a lot of metrics so those are the kind of things we look at and we kind of bundle them up into to compare them verticals. I mean there are other verticals that we do great in as well in the non-profit sector was just surprising. And there's some pleasant things where with the nonprofit as well because they're doing such great things so it encourages you to do to pay attention to what they're doing and learn more about what they're doing so it's just a pleasant vertical.
[00:17:58] And in general yeah obviously there's a there's gonna be good.
[00:18:03] We call it social sector kind of a purpose driven mission driven notes there's always a little bonus there for helping your group that's making a positive significant impact in the world. I certainly get that. What other benefits now that you've kind of taken the sector and say okay we're really going to focus on this once you've started focusing on it. What else has started to become easy or what else have you noticed in terms of serving you well from a business point of view.
[00:18:29] Well I think you start once you start understanding in which verticals worked well for your business you start learning more about that were critical. You start learning the common challenges they have. So for example for nonprofits fundraising obviously is an important thing keeping track of your donors and who they are.
[00:18:46] The Prewett management system is important more so than say an architecture firm for which AutoCAD is you know the most important thing. Now there's only a handful of players and agents off. Once we get good relationships with those companies and the ecosystem around it. The consultants the integrators the trainers all of that ecosystem. Once we build those relationships and we have years ago it's easier to help a new nonprofit that comes to us and says look we've been doing a tracking in excel and it's you know it doesn't work and we could say well here's one easy. Here's what you know a couple of our customers are using or many of our customers are using. Take a look at this and use a bit more for fazing iPhone based CRM for nonprofits. Let's look at that and maybe you need to raise money through pessimist's or Twitter donations or Facebook in campaigns. That's different need. You start learning these commonalities and being able to quickly connected customer to a solution versus if you have too many verticals it's hard to get deeper into that right once you've narrowed it down to two or three top verticals that make sense you just deep in your early years there. Obviously if you get down to one it will be even deeper. But there's also some risk that you're susceptible to that vertical like I said so for some companies you might want to find the right balance between one and you know many.
[00:20:00] So when we try to focus on a few I think that makes sense and I like that sort of the idea that once I really double down on a vertical of the two things that you mentioned I think a really important one is I really begin to understand how their business operates you know not just the thing that I provide not just the particular service that I've been focused on but really all the things that are going on inside that business.
[00:20:21] I can now have more intelligent conversations with the people that I have relationships with about how things are going. So it just gives me an opportunity to build deeper relationships because I have the knowledge. The other thing I think it's interesting that you mentioned is you begin to learn the ecosystem. So it's not just understanding what the problems are and the tools but you actually knew the consultants you know the advisers you know the other people that you can help you can introduce them to that you can facilitate conversations around. And that ends up becoming really important for these folks because you know it's one thing to get people say OK well here are the top five. You know you know system CRM systems. It's another thing. And here are you know two or three really good consultants who can help you implement this or it can come in and train your folks in the thing that those those relationships and those referrals can be gold in that situation because Fleming knows and the trust that comes with that being able to say look you know they worked with several other my clients I know they do a good job you know they're trustworthy they're highly capable like that is stuff those people cannot get other places like. You become a really valuable resource for them. I do think your comment that go completely on one vertical has some downsides and some risk certainly. Typically what we're looking at there is figuring well what is the risk and how can I find other verticals to offset that. Whether it's seasonality whether it's economic cycles whether it's you know where is my risk exposure and how can I bring in things are going to offset. So it's the whole you know patio furniture ski sales you know it's like how do I find a countercyclical business that that pairs well.
[00:21:52] One more thing I would add that is that in your marketing and sales efforts once you have a few customers in a certain vertical and for us you can get very very narrow one narrow example in the U.S. we have a few nonprofits that are in sexual health and education. So their interest to being and they have a very need right because if you block in their spam if you block all you know sexual related words they can't do their job they don't have to say the word condom. So once you know that right. So by the time we're talking to Prospekt or lead is in that very narrow niche and we say well we know the headaches about spam you know we just you are you having a conversation at a much more trusting level.
[00:22:37] They can quickly gain confidence in your when Pacific needs because you have other examples very specific examples that resonate with them. And it's just like Getafe also I think it starts helping you in your marketing and sales where we find out we've got a we've got a group of sexual education nonprofits as customers now because not only do they have common networks. We kind of know who we are but we also understand their challenges very specific challenges. Well said helps not only on that site but the marketing and sales side. You start gaining some more traction and that's why businesses want to see us to pick a vertical because it's a self reinforcing thing and a lot of ways yeah and I'm sure you've run into this but I find that you actually can come to the table and tell them problems they haven't had yet.
[00:23:18] You may not into this yet but in a couple of months you're going to have this problem.
[00:23:21] Here's a solution and here's how we're going to avoid it. Before you read it that data is really gold is when you can tell a customer that you can help them avoid a problem they haven't stumbled on yet that you kind of have a friend for life.
[00:23:32] Yeah yeah. And it's surprising how well they can be pretty unique. You know where where where where for example a Web site. A company having a Web site that might have content that someone considers controversial. You know there's some risk around that you need to protect around that. So yeah you're right you can't help especially when you have larger companies the same vertical and smaller companies coming up. You can sort of say well these are the mistakes they made in their history. Right. And here's what you can learn so you can start expanding your service to getting a little. I wouldn't say it's consulting business consulting but it's experience you're sharing experience and nothing beats experience. Yeah nothing mysterians once you gain some of it and you can share it with your customers and let them gain from it.
[00:24:13] So what are some of the downsides.
[00:24:15] I mean I guess in terms of you know as you've gotten kind of focused on this what are some of the challenges you've run into or things you've had to kind of rethink or just from a business point of view what's come up that's been you know more of the things to watch out for as you begin to focus.
[00:24:29] I would say that different verticals react differently.
[00:24:33] The marketing and sales messages that they have different sales cycles Zent sales the length of sale the sales process would be if it's drastically different higher spending might might translate to that might be different Wari. In one sense you might be advertising a certain way or reaching out in a certain way for another vertical to be different. So you want to have those efforts be related to each other not be drastically different. So if you selling to the enterprise for example your suits and handshakes and you have a large sales team that's flying around trying to close those deals versus a smaller company that might find you on Facebook ad or or a youtube search. So your marketing spending is very different so I think that's that's one of the differences is that you or you don't want your sales and marketing strategy to be wildly different. It's probably going to be more expensive to have a group of suits flying around. And also a very forward thinking snapchat geo targeted awareness campaign. So those are two different teams with a very different mindset. That means you spend your spending doesn't overlap as much in that sense that's one thing I can think of.
[00:25:42] Yeah I certainly think that that part of what is happening is there's kind of a operational or an executional impact and then kind of a cultural or people impact as one is as you start to specialize your processes become much more honed to that particular service for that particular target. And you do end up you know if you have a lot of legacy clients and other verticals you kind of run into this problem of okay well how do we keep how do we keep servicing these folks do we keep servicing these folks are you okay with service potentially going down if this is the way we're going to do things now. Well that may not serve some other customers. I always find that there's no letting go customers that while you love are not fit for your new focus is probably one of the hardest things businesses do.
[00:26:24] And then the people sign up and oftentimes I find that as you know as you focus your culture ends up becoming a little bit more articulated and a little bit more specific.
[00:26:32] So sometimes you running kind of people issues where you know that that person who has a great customer service focus or technician you know for the business before you know just doesn't really work with this new focus we have. So dealing with this whole kind of out of why I don't why either change or manage out the folks that are no longer upset you know with the new strategy going forward.
[00:26:53] And again those are those are tough ones for folks. Typically people that have been there for while.
[00:26:57] Yeah and I think I'll give you a pretty concrete example of trying to do those experiments when companies small and get them out of the way because it's gets harder and harder to change. And here's a perfect example. I have conversations with other I.T. firms who have had the hourly be a model for a long time and are successful. I mean if they're successful but they want our model I'll lay it out for them I'll tell them exactly how to do it and it is painfully hard to change. I call it having a different guy. I got a how you price things right. And then you have to change religions. And I've seen it and I've known I've tried to help them make the change. It's very hard because they almost have to fire some of their customers that they were billing hourly to have our model. We are lucky because we started with our model from the beginning. So you don't want to have to make drastic changes in how you run your business once you have a lot of customers you want. It's like building a product range. You want to build a minimal viable product and iterate when it's small when you have 3 customers. Now when you have 10000 customers on that app then you can't you're locked in to things you can't change you know look how long it took Twitter to go beyond 140 characters. Yeah because they were locked in and they were locked in and they probably get it done quickly in week three.
[00:28:06] But that's what happens. I would say I get those experience out of the way with the first few customers because it's going to get harder and harder as your customer base grows.
[00:28:15] Yeah that is sort of the sooner you do it the easier it's going to be because you're not going to have baked in a lot of investment a lot of thinking and a commitment to spending cuts. Oh goodness.
[00:28:25] We're running out of time here. So if people want to learn more about you about the company you know follow up questions. What's the best way to get a hold of you and learn more of Snoop.
[00:28:35] Yet I'm happy to share it with. They were just seen a dot com s i n you dot com so that's our Web site and I'm just Larry SCEA that I'm so Shumi and email me and I realize that Twitter and I'm happy to share whatever little tidbits we've learned along the way with anybody that that then we find them useful.
[00:28:52] That's great. Thanks so much Lee. I'll make sure that those are in the show notes so people can click through and get that. This has been a pleasure. I'm excited to kind of stay in touch and hear how things develop and we can do another episode when you're you know when you're scaled up and even bigger and we can hear how this is planned out for you.
[00:29:07] Awesome thanks for the time.
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