Take a pay cut or be laid off.
That was the choice Tony DiDonato gave his employees during the last recession when The Millennium Group Computing (TMGC) lost a contract—due to circumstances outside of their control—that represented 54% of their business.
Nobody left. That’s because DiDonato, president of operations and CEO at Lakewood, Colorado-based TMGC, had created a culture where employee retention and a good culture are at the heart of business success.
First, A Business Model Shift
Founded in 1999, TMGC initially operated like a traditional break-fix IT company. Most of their work was reactive, which “was maddening,” says Tony. “It’s hard to track. It’s impossible to run with a budget or have any predictions for future financials.”
He also felt the break-fix model was inherently skewed against the client’s best interest. “When you care about your customers, you’re supposed to [anticipate] any problems so they don’t have these big issues that cause downtime,” Tony explains. “But then, you work yourself out of a job because the only time you got paid in break-fix was when something was broken.”
Tony felt stuck in an industry driven by money, not his clients’ best interests. “It was really tough for me because I felt like I couldn’t do right by my customers,” he says.
In 2006, a perfect storm of bad luck and a flawed business model was the final straw to push Tony to change the company’s approach. It began when one of TMGC’s top clients hired a new CFO. “Without much basis, he felt he wanted to go in a different direction and thought he was paying too much,” Tony says. “Some of the reasons why the customer left were dramatically fluctuating invoices because we were trying to be proactive on an hourly basis,” he says. They lost the client, worth 18% of the business’s revenue. “We were a smaller company back then,” recalls Tony, “so it was a lot more impactful.”
This wasn’t just tough on business; Tony also noticed that the client’s decision weighed heavily on his employees. “It sucked because the two technicians I had on the account at that time were taking it personally. When you spend five days a week putting all your effort into what you’re doing, and it’s not enough—that’s a huge blow to your ego,” he explains. It’s not just a punch to their pride; when a client relationship goes sour, it takes the enjoyment factor out of employees’ jobs. “Then you start wondering if this is the right job for you or if you’re in the right career,” says Tony.
If Tony could give his staff enjoyment in their job, it would help with employee retention and be better for everyone. “Sometimes the work in IT is really stressful. But at the end of a project, our employees are so excited to talk about everything they did to get the client back up. You can tell they enjoy being the problem-solver,” Tony explains. “At the end of the day, this is a service-based industry, and those are big wins for us. I had to get that big-win feeling back. We weren’t going to get that big win until we’ve made some serious changes.”
Tony knew the first place to start was changing his business model from a break-fix to a predictive environment. There was just one problem—he didn’t know how. It was 2006, and managed services, as they exist today, were still in their infancy.
Luck struck again, but this time in Tony’s favor. Shortly after their top client left, TMGC landed a government contract in Tennessee. It was a fixed-price contract, i.e., a managed predictive environment. “We could actually predict our costs which gave me this ‘aha moment’ to see how a fixed-cost budget works and how we could bring that into the IT realm,” Tony says.
Next, Improve The Culture
TMGC soon held multiple major government contracts with the Department of Energy and Department of Defense and had fully integrated the MSP model into the company. The new model was working, and Tony had efficient processes to make the company sustainable. But when he looked around at the atmosphere, he noticed something was still off—his employees were exhausted by the government’s never-ending list of requirements. “If you were trying to meet all of the government’s requirements and make them happy, you would go mad,” he says.
Instead of risking his employees’ sanity or loyalty, Tony asked them what he could do to improve their work culture. “I said, ‘How can I make this a better environment for you so no matter what you face in this realm, you can roll with the punches?’”
In those first three years as an MSP, Tony realized that the business model and effective processes are only two parts of the equation. If employees weren’t happy, then clients weren’t happy; if clients weren’t happy, the business would flounder.
Tony set out to make his employees—not the business’s bottom line—the center of TMGC.
Even a short time after employing this new approach to business and culture, Tony knew it was working. Recalling the loss of that contract during the recession, Tony says, “I zeroed myself out and asked accounting what it was going to take to keep the doors open on this place.” He had to make a decision no leader ever wants to make—he asked every employee to either take a pay cut or be laid off.
Due to the strong company culture that Tony had cultivated, every employee opted to stay on board because they believed in the company and the role they played in it. “We fought and clawed and got that contract back in 18 months,” Tony reveals, “but this time with a new prime for a higher price.” At that point, TMGC rewarded its employees’ commitment by eventually recouping the pay they had forfeited. “I felt like that was necessary to show that loyalty to everybody,” Tony says. “That was a defining moment when all the employees knew we were in it for them.”
Hire For Culture Fit
How did he create such a favorable climate for employee retention? Tony actively worked against the existing IT culture, which leaned heavily toward overpromising and underdelivering and employee burnout. “Too many companies try to approach things by being at the customer’s beck and call and doing it at the expense of employees’ sanity,” he says.
To ensure their work environment is best-in-class, “we’re very careful about who we bring into our culture,” Tony explains. “A big piece of hiring with us is making sure employees are a good culture fit, and then we determine if they’re technically sound enough.” This is critical to a great work environment because “when you enjoy the people you work with, everybody around you makes you better at your job,” says Tony. “You’re more satisfied at the end of the day because you’re accomplishing something and feel important.”
When his employees are happy, clients are significantly more satisfied with the service experience. “A lot of our clients say, ‘Gosh, so-and-so is so great to work with.’ It’s rare for me to hear that someone is upset,” Tony says. “I would know because I’m the one that deals with upset people at the end of the day.”
Ensure Clients Are A Fit Too
Tony also vets prospective clients before onboarding them because a bad apple can negatively affect his employees’ well-being. “We’ve blacklisted a few industries because they are horrible to work with,” Tony says. Some treated his employees terribly, and others required working long hours on nights and weekends. Tony says it’s not worth risking burnout or employee retention to take on those clients.
To ensure clients are a right fit, Tony offers a free 60-minute consultation before conducting a network evaluation, which he admits is not typical for the industry (then again, he’s built his business working against industry norms). He likens asking clients to spend money on him in the first meeting is like going on a date and then asking someone to get married. “I’d rather just go on a date and see how it’s going to be. When we find out more about the person, we can see if we’re ready for that next step,” he says.
Employee Retention = Client Retention
Experience proves that the key to doing right by his clients was to do right by his employees. “If you’re spinning employees in and out of your company, it’s super-detrimental to your bottom line,” Tony says. “If you can keep that retention high, you’re going to keep customer satisfaction high. When your customers are satisfied, your bottom line grows exponentially.”
TMGC’s employee and client retention are very high—he has multiple clients who’ve been with him for 19 years. And the employee who struggled after losing TMGC’s top 10 client in 2006? He’s still with the company 17 years later.
“Our culture is what drives our success,” Tony says. “Happy employees, along with good processes, lead to happy customers. I don’t think that’s employed out there enough nowadays. We have this little saying, ‘We make sad people happy’ as far as technology goes. “People tend to smirk at that and go, oh really? Well, we’ll see.” Challenge accepted.
For more information about TMGC, go here.
For additional employee retention strategies, read Mike Michalowicz’s article on personal operating systems.
