Episode 102: Securing Your IT - Why It Matters For Healthcare Brands

Kevin is a fourth generation Seattle entrepreneur and small business owner who founded Dynamic Computing in the year 2000 while attending the Foster School of Business at the University of Washington.

Over the past 20+ years, Kevin has built Dynamic Computing from the ground up into the thriving small business it is today. Kevin holds degrees in both Business Administration and Political Science from the University of Washington in Seattle. He was recognized as Washington State’s Mr. Future Business Leader in 1998 and as a Puget Sound Business Journal 40 under 40 honoree in 2018.

Outside of work, Kevin is an avid golfer, perennial Little League coach, budding education and policy advocate, husband to a wonderful wife, and father of two twice-exceptional boys.

What you’ll learn about in this episode:

How IT directly impacts your brand and reputation.
How Kevin defines branding: Branding isn’t a logo or tagline, it’s what people think and feel about your business when they're not actively interacting with you. It’s the impressions that stick, the emotions they remember, and the moments that shape how your company is perceived long after the interaction ends.
How healthcare organizations can protect PHI and stay HIPAA compliant: Kevin explains how managed IT providers support healthcare teams by starting with a comprehensive IT and compliance audit, identifying HIPAA HITECH, and other regulatory gaps, and building a roadmap that aligns security tools, employee training, budgeting, and long-term IT planning.
The connection between technology, people strategy, and productivity: Discover how the right tech stack enables happier employees, lower labor costs, and stronger company culture.
How to build an entrepreneurial business without outside capital: Kevin shares his journey of founding Dynamic Computing, reinvesting profits, prioritizing cash flow disciplines, and maintaining sustainable growth by focusing on quality over rapid scale.
Why quality-driven growth matters: Learn how focusing on strong client relationships, recurring revenue, and employee retention creates a healthy, self-reinforcing business cycle.
The real risks of underinvesting in IT security: Hear a firsthand example of how a security breach led to financial loss and legal consequences, and why proactive security is essential for trust and risk mitigation.
How to plan IT budgets, capital expenses, and tech refresh cycles: Get practical advice on separating operating expenses from capital investments, avoiding surprise costs, and proactively managing tech debt.

Additional resources:

Transcript

Josh Dougherty:

Welcome to A Brave New Podcast. This is a show about branding and marketing in the healthcare space. But more than that, it's an exploration of what it takes to create brands that will be remembered and how marketing can be a catalyst for those brands' success. I'm Josh Dougherty, your host. Let's dive in.

On today's show, we're going to talk with Kevin Gemeroy, who is the founder and CEO of Dynamic Computing. Dynamic Computing is a managed IT services firm based out of Seattle. And you may be wondering why in a podcast about marketing and branding and the intersection between those two, we're talking about managed IT. Well, there are two really key links, I believe, between great IT and brand. The first is the idea of trust. At the end of the day, brands relate with their customers, with their audiences on the basis of trust. People need to have a high level of these people understand me, they care about me, they take care of me. And without strong cyber security, which is a key element of IT, that trust can disappear in an instant through a breach or some other sort of crisis.

And so, that's one area where I think brand and IT are very closely integrated. We need to make sure, in order to safeguard our brand, that there's a strong IT and cyber security posture in place. The second is in the area of process, we talk about branding being composed of your brand expression, your logo, your colors, et cetera, your personality, your brand experience on your website and in person interactions, also your culture, and then your process and all those things laddering together when they're aligned behind a strong brand strategy, leading to trust and affinity. So process IT lands in that process area, and it also influences culture. When people have great IT in place, their processes work smoothly and their culture, they're allowed to fully express their culture because they aren't worried about how their systems are working. They instead have systems that work for them and are built around that culture.

And so, that's the reason why I wanted to talk about IT today with Kevin. And I also want to talk to him because in the healthcare space that we work in a lot, there are numerous opportunities for IT to help do things like secure PHI, ensure HIPAA compliance, make sure any other complex, maybe high-trust compliance frameworks are managed, and we can be sure that they're being managed correctly. So without further ado, I'd like to bring Kevin into the conversation. Well, welcome to the show, Kevin. So happy to have you on.

Kevin Gemeroy:

Thanks for having me, Josh.

Josh Dougherty:

Awesome. Well, I’d love, as we dive in, for you to just share a little bit about your story. I think, obviously, we're going to dive deep into brand and about managed IT and how to do that effectively, but it's great for people to hear a little bit of where you've come over your career. And so share with me a little bit about what you've done.

Kevin Gemeroy:

Absolutely. So I like to say that I'm an old school Seattle entrepreneur from an old school entrepreneurial family. I'm actually the fourth generation in my family to own and operate a small business in the city of Seattle. Great-Grandfather actually moved from Canada to Seattle for ... It was the land of opportunity in the early 1940s. And Grandpa followed in Great-Grandpa's footsteps, started a local auto paint distribution company. Dad and uncle ran that for many years, sold it to a private equity firm in 2018. I was given the proverbial kick out the door of the family business at age 14 and told, "Kid, you got to go do your own thing."

And so, like any entrepreneurial kid, I decided I was going to do exactly that. And so, I got my business license at 17. Honestly, it was a side gig to help pay my way through college. I was the 12-year-old that was tearing computers apart and putting them back together again in his basement. And it was something that I knew how to do, help pay the bills a little bit. And then I decided my junior year of college that I was probably going to have to get a real job and decided if that's the situation, I might as well give this whole entrepreneurship thing a try, start a company. And I figure if I completely failed at it, I would probably learn enough that it was worth the time and energy.

So, launched Dynamic Computing out of my fraternity bedroom actually in the year 2000, decided that that was not going to work very well. And so, moved into an apartment in Ballard and started officially, launched the company in 2021, or excuse me, in 2001. And so, we hit our 25th anniversary actually back in September.

Josh Dougherty:

That's amazing.

Kevin Gemeroy:

Yeah, it's been a long journey from a one-bedroom apartment in Ballard to all the way to the waterfront today.

Josh Dougherty:

Yeah. I think it's amazing, too, to choose to create the life you want and the job you want versus accepting what others maybe would give you. So I'd love to hear, you have a long history. Most businesses fail quickly in the first five years or in the first decade, and you've been at it for 25 years. What do you think have been some of the keys to success for you of not only surviving over those years but consistently growing over time as well?

Kevin Gemeroy:

Yeah. I think some advice that I got, I think from either probably my grandpa actually was don't take any outside capital, don't sell your stock. And so, I borrowed all the student loan money I could get my hands on to start my company initially, but I was never in a situation that I could use other people's money to build a business that was running negative cashflow. We had to make money because that was the only way I was going to feed myself.

Josh Dougherty:

Yeah, no doubt.

Kevin Gemeroy:

And so, I think maybe a little has been lost in the past 20 years of the tech booms of Seattle about the understanding of the folks that are just hustlers. They work hard, they're scrappy, they live off of less than they made, and they reinvest the funds that they're generating in their business back into their business to help it grow. And so, probably the best advice that I ever got was from my grandpa, which was always live off of less than 80% of what you make and always be investing money back into your business and always be giving a little bit away. And if you do those things, you'll be successful. And so, that's really the way we've chosen to do it. Every year the goal is to grow, not big, we never wanted to be a 500- or 1,000-person company. We were never seeking out $1 billion valuation. We just wanted to build the best managed IT services company that existed in the city of Seattle and honestly in the Pacific Northwest.

And so, we do that by trying to grow 15 to 25% year-over-year, try to hire great people, try to get great clients. And that positive reinforcing cycle of having great clients allows us to keep great employees and great employees allows us to keep great clients. And if you treat your clients well and your employees well, usually that ends up being a successful long-term thing.

Josh Dougherty:

Yeah, I 100% agree with that. Another thing that I've observed with you is you have an incredible amount of focus on here's the model that we want to serve and here's how we want to work. And I think it seems like that has been another key to success is being able to keep your eyes on what you can do well and to a high level of excellence. Can you share a little bit about that as well?

Kevin Gemeroy:

Yeah, absolutely. So I mean, I think some of this is learned from experience and some of it is learned through, I call it inspiration, if you will. Ultimately, I recruited two of my college friends to help join the business. One of them still works there. Russ is our CTO and we met at the University of Washington and we've been doing this together for, he's been there for 24 to 25 years. And early on, our goal was just to stay alive. So we were out there, we were providing IT services. And like a lot of folks in our industry, we would happily provide any IT services that we could do to anybody who had money that was green. And that was the focus—just stay alive and grow. And it turned out that we were a little better at that than we thought we would be. We grew the business up to over $1 million in revenue in three years straight out of college. So we were kind of like, oh, okay, we can actually do this pretty well.

And so, what we learned in that process, though, is that not every client is a good client. And as we continued to grow the business, we were like, The revenue we really want is the recurring revenue. We want the ongoing partnership, not these dips and spikes. And the kind of clients we want are the ones that treat us well and appreciate how we treat them and ones that we're not constantly having to chase down to get an answer or get a payment or things like that, we want that solid partnership. And so, over the next few years, we just decided we were going to focus on quality of revenue instead of quantity of revenue. And the million-dollar business that we had three years later was a much better, much more profitable million-dollar business than three years earlier.

And that served us really well because we hit that point just about going into the Great Recession. So like 2008, I want to say over half of our revenue came from residential real estate, which was not a great time to be in that position. But the firms that we worked with were really good partners and most of them did make it through and the vast majority of them kept us as their service provider. And so, I think going through an experience like that where you see the bottom fallout of the economy and an industry that's heavily impacted by that, not every company gets hammered in that kind of recession.

And so, that was a very confidence-building exercise to be like, "Okay, well, let's find more of these great clients, and let's find more of these great employees." And so, just continue doing that year after year after year after year. And I don't remember exactly where I heard this, but I know it's like, I don't know, GE or Cisco or one of these guys, I've heard it in one of the various peer groups, they say every year, they actually force people or they force the company to cut the lowest 10% of their employees. Not advocating for that, don't think that's a great idea, but I think the concept behind it is the right concept, which is your worst clients and your worst employees need to go find somewhere else to entertain themselves, because that creates opportunity for you to get great new clients and new employees.

And so, 10%, no, I don't think you need to do that. But I think you are in a situation that every year if you're not losing a client or two because they're not right for your business today, and if you're not losing an employee or two because they're not right for your business today, then you probably don't have that healthy cycle of the business cycle of turnover. A little bit of turnover is actually a really good thing.

Josh Dougherty:

Yeah. I mean, it keeps you hungry to always be leveling up, because there is always an opportunity to improve.

Kevin Gemeroy:

Exactly.

Josh Dougherty:

Well, I would say I would argue another reason for your growth and success is through delivery and through, I think, some consistent focus. You've been able to develop a strong brand and a strong reputation for Dynamic Computing. So we're going to get deep into IT in a few moments, but I'd like to ask a few questions about branding first. Is that okay?

Kevin Gemeroy:

Absolutely.

Josh Dougherty:

Cool. So one thing I ask everyone who comes on the show—as we're talking about in our show, typically that confluence between brand and marketing and how to drive growth that way—is how they define branding. So when you think about it, Kevin, what's your definition of branding?

Kevin Gemeroy:

So I'll say that this is a very not marketing, not academic version of anything.

Josh Dougherty:

I love it.

Kevin Gemeroy:

So this is just the first thing that came to mind. And what comes to mind is what people think and feel about your business when they're not necessarily interacting with you directly. Very simple, like what are their impressions? What do they think? What are the things they remember? How do they feel? How does the interaction with that business make them feel? And I think if you ... most people, if you have even an extensive interaction with them, they're not going to remember everything that happened. They're going to remember one or two things that really stuck out to them. And one thing that I learned in one of my various Vistage groups that I've been in over the years is people don't always remember what you said, but they almost always remember how you made them feel.

Josh Dougherty:

1,000%.

Kevin Gemeroy:

And so, I think those things that either the general public or people that interact with you think about you and remember in their interaction with you and then the way you make them feel. I think that is what creates a brand in my mind.

Josh Dougherty:

That's pretty funny because you say that isn't a marketing-type explanation. That's exactly how I would talk to people about brand. You don't control your brand that exists in your customer's hearts and minds, right?

Kevin Gemeroy:

Yeah.

Josh Dougherty:

As they're thinking about you. So you've been pretty intentional. I know we've worked together on creating and curating, maybe cultivating Dynamic Computing's brand. What are the things, full disclosure here, Kevin and I work together as a client-agency relationship, but what are some of the things that make you unique and differentiated in the managed IT space, especially in Seattle, because you have a very-

Kevin Gemeroy:

Local focus.

Josh Dougherty:

... I don't want to say narrow, but a local business by design, not by-

Kevin Gemeroy:

Absolutely. Absolutely, yeah. So I think it's funny, managed IT services is like this big term that for a long time, I actually thought that the vast majority of people didn't have any idea what it was, right?

Josh Dougherty:

Yeah.

Kevin Gemeroy:

Because it was really an evolution of the term “IT outsourcing.” They decided that outsourcing didn't sound good, so we're going to call it managed services. It's essentially very similar or if not the exact same thing. I think one of the challenges that we face in our business is the average buyer of managed IT services doesn't know what they're buying. Unless you've worked with a managed services provider that has done a good job of educating you about the different things that are available and what that looks like and so forth, then in most cases you're like, "My IT isn't working. I know my business really well. I don't know a lot about the IT stuff. I either have a vendor or I have an internal employee and I need help. I need a solution."

So, differentiating when you're selling a service that isn't completely and totally understood by the client that's buying, it's a very high-trust interaction. And at the end of the day, what they're asking is, "Are these folks going to solve the business problem that I have? And is the amount of money that they're willing to charge the amount of money that I can afford and I'm willing to spend?"

So the way that we like to differentiate, I would say inside of that context, is to focus really heavily on the strategy right from the start. Because most of our competitors, and there are lots of companies that offer managed IT services, I don't think anybody does it quite the way that we do. Our flavor of it is certainly a bit different, maybe a lot different than some, but I think a lot of them are very tactically trying to solve the technical problems like, "Hey, the computers are running slow. Let's spend a bunch of time doing things to the computers and seeing if we can make them faster." Or the employees are complaining about things going down. Let's swap this piece of equipment and try to prevent the downtime. I think not enough time is spent talking to the CEO or the CFO or the director of operations or controller. What do you want technology to do in your business? What are you doing with your business and how can we support that through the use of technology?

Because at the end of the day, just like human resources, for example, or accounting, IT is fundamentally a support rule of whatever it is that we're trying to do in the business. And so, if we don't understand the business and the goals behind the business, then we can go solve all the IT problems in the world, but that doesn't actually help the person that owns it or the group that owns it or the person that's in charge of it achieve their goals.

So our focus is really on what are the goals? In a lot of cases, they don't know. So it's like, okay, well, let's try to develop a few goals as it relates to technology so that we can get a better understanding of it. But I think that big picture focus, let's get that right first so that that's our North Star and everything that we're doing is in support of that. I think that makes a big difference.

Josh Dougherty:

Yeah, I agree. And then as you ask those big picture goals, or questions about big picture goals, I think you get to a place where maybe you're talking about this is how we want to show up in the market and this is how we want people to perceive us. And then, you're at a position where you can start talking about how does technology help boost how you show up in a marketplace or equip your employees to show up well, those sort of things. So I'd love to hear a little bit about why you believe it's essential for folks to be thinking about IT and to be investing in IT as they build a strong brand. And we'll use this as a little bit of a shift over into talking about IT, but how do you think those things are intertwined, IT and effective, I should say, IT and brand?

Kevin Gemeroy:

Yeah. Well, I think I talked a little bit earlier about how great clients and great employees make this positive reinforcing cycle. Most companies have a people strategy of some sort. We have a lot of low wage workers, but we want to treat them well. We want the environment to be better than they would get at our competitors, but we're not going to pay them a lot more. Or we have these really amazing, incredible and talented, highly educated people, and we need to make sure that we retain them. Whatever that people strategy is, the technology needs to support that people strategy. And our job market may not be the best that we've certainly seen in Seattle in the past, call it 10 years right now, but great employees are still hard to come by, great people that help run your business, you want to keep them around.

And that labor is portable. It can go to whatever company or organization or really city that it would like to. And so, as the owner of a business or as the operator of a business, we want to make sure that the technology or the lack thereof is not a deterrent to my employees being able to get their job done. The same way that I want an employee to be able to access an HR resource to be helpful for them, I would want my employees to be able to access a technology support resource that is helpful for them getting their job done, that's able to communicate with them easily, that's able to ask the right questions. And instead of having this experience where it's like, well, if I call our help desk, I know I'm going to waste two hours on the phone. I'm going to get transferred four times. I'm going to get through three scripts.

And there's this one guy in tier three, he really knows what he's talking about. My goal is to make sure that I get to that guy. I don't want them to have that experience. And I think most people in a leadership position and a business don't want that. And so, I think your employees and your clients are what create your brand. The technology is a support layer to your employees and your clients. If you have really bad technology, but you have a really cool business, but you make it really hard to access because you're doing online ordering or something and the web interface is terrible and the website's always going down. And so, you're having to have your clients pick up the phone and call your employees. Well, now you're paying more people to do more stuff on the receiving end because you didn't invest in technology in the right way.

So that's really what it comes down to is like there are two fundamental views of technology. Either it's something you can invest in that helps give a return. And usually the return is happier employees, more productive employees, and frankly, less employees per dollar of revenue. The flip side is you can view IT as a cost. And if you try to minimize it, then usually you're in a situation that you're paying more for labor costs and you're less efficient because people are wasting more time because they're fighting the technology instead of leveraging it.

Josh Dougherty:

Yeah. I love that you talk about that because when we talk about the brand experience, one of the cornerstones of it is process and culture. And what you're talking about is smooth IT process, strong technology backbone enables the culture to be expressed in the way you want it to be because people aren't having to think about that technology backbone. The other thing that you-

Kevin Gemeroy:

You're not going to fight with it.

Josh Dougherty:

Yeah.

Kevin Gemeroy:

That's such a thing. One of the things that we've seen a lot as we are onboarding new clients is three months in, we start seeing their help desk ticket volume spike. And the reason for that isn't all of the things we're changing, which we are doing. It's because, and we hear this from our clients all the time, their employees are realizing and communicating with each other that they finally have somebody to call to help with these technology issues that they want to actually deal with. And so, then it's like we start getting calls for all sorts of things that are totally out of scope because it's like, I know that they'll help us do it.

Josh Dougherty:

It's the best endorsement for your business at the end of the day, but also create some extra work maybe to get going.

Kevin Gemeroy:

It's a little bit of challenge. So we just have like, "Hey, this software that you have, they have an 800 number. I don't want to call them." Well, they're better at their software than we are, so we really need to call them for that.

Josh Dougherty:

1,000%. The other way I think there's a real strong overlap is with risk mitigation and because you can spend years building trust or have the best product in the world, but if there's a hack or something and your risks, you aren't doing your due diligence on security, all that trust goes away in an instant with customers.

Kevin Gemeroy:

Yeah. I have an example of that. I have a client right now that we're working through an audit for. Obviously can't say the name, can't say anything about what they do. They had hired a lower cost and lower service and obviously less focused on security IT provider a year or two ago. And they ended up with a situation where one of their accounts was breached. There was a couple $100,000 loss of funds. But then to go along with that, theirs is an organization that stores sensitive, protected, personally identifiable information. It's not a healthcare organization, so it's not PHI.

And that loss or that breach of that information resulted in a class action lawsuit against them. And so, now they're in a situation that they're spending hundreds of thousands of dollars on legal fees and experts and forensics and so forth, along with a couple $100,000 of actual breach or actual loss of funds. And granted, they have cyber insurance and a lot of these costs are going to get covered by that. But when talking with their executives about the situation, they had no idea that by trying to save what, 20, 30% on IT costs, that they would be in the situation that they were literally spending hundreds of thousands of dollars dealing with the consequences of that decision and not being able to focus on anything else in the business. Because when you're in a situation that you're defending a lawsuit like that, that's all encompassing. Even when you have great outside counsel, that's a full-time job just to deal with that.

And it's like, yeah, that's an extreme situation. But if someone had told them a year before, "Hey, if you spend an extra 5,000 bucks a month on IT, it could save you hundreds of thousands of dollars on these costs that you'll incur, not to mention all of the side effects, if you will, of it." And of course, the average small business owner or executive would be like, "Oh yeah, yeah, sure, sure." But it's real. This is an actual real story.

Josh Dougherty:

That's real.

Kevin Gemeroy:

And I get it, it's different. I think the level of risk and the security measures need to be different based on every business, but every business also gets to a size where it's no longer optional to do the right stuff. We have another new client we're working with right now that's grown to a couple hundred employees and they don't do anything that's real exciting. It's a simple distribution company, but they have almost 200 employees. And so, if you're in a situation that you don't invest in technology the right way, you're spending piles of money on labor costs for work that isn't getting done efficiently.

Josh Dougherty:

Yeah. I think that it's a really good point and it's a good transition for us to talk about a little bit more in detail about what Vantage IT services are, who they're best for, because a lot of people in our audience work at startups, they're moving fast, they're innovating, they're breaking things almost by default on purpose to push their model forward, but they also aren't always slowing down to build out the processes that they need to be to make sure that they have the security, the backbone to scale. And that's not everybody, but there are certain people that are moving really quickly. So I'd love if you could start out and share a little bit about what managed IT services are and maybe when is that point where you think someone should start considering making that investment versus the other option, which people sometimes think about, building out their team in-house or doing those different things.

Kevin Gemeroy:

Yeah, absolutely. So big picture, I always like to say managed IT services is a fancy, not so new now, but new-ish name for IT outsourcing. The premise behind it is pretty simple. You're subscribing and gaining access to a fully functional IT department instead of hiring a single resource with a single skillset. So I'll go back to marketing because we're on a marketing podcast, like branding podcast. There are a lot of different roles in marketing and you can hire a marketing person internally, but chances are they're not great at graphic design and copywriting and web design and strategy and development and photo editing and video, all the things that maybe a small business would need.

And so, what usually makes more sense—rather than trying to have one person do eight things that they're somewhere between okay and not that great at—is subscribing to an IT department that does all those same things or a marketing department that does all those same things. So managed IT services is the idea behind basically saying, "Hey, in my company, we're going to hand off the IT services to a firm that does that for us." And we're going to tell them what we need and we're going to tell them what our requirements are, and they're going to be responsible for delivering on those promises and creating the outcomes that we're looking for.

Josh Dougherty:

What are the pieces that are usually made up in that? So I think people often think of like, "Oh, managed IT, I'm going to get a help desk and I'm going to pay a monthly fee for that help desk." What do you think, for a best-in-class managed IT services firm, what are the things they're providing?

Kevin Gemeroy:

Yeah, good question. So the lowest cost and most common thing that people think about is the help desk. And just as a reference point, we have 18 employees right now. We have four of them working on help desk on any given day. So in terms of the overall IT need, it's like 22.5%, if my math is right, of all of the services that are needed. So a lot of providers will just sell help desk. Typically, the ones that do that, Seattle's not the cheapest place to employ help desk employees, so those are typically going to be outsourced to either another state or possibly to another country. So that's the lowest cost managed services model. It's also very limited in scope. A best-in-class managed services provider should be starting with strategy, like I talked about earlier. There should be a heavy focus on security and a dedicated team that handles those sorts of things. The help desk piece is an important piece, but it's a support role. It may be the one that the client interfaces with the most frequently, but I don't even think it's the most important.

I do think it's important that it's integrated in though as part of a comprehensive and single IT team. Because if you're in a situation like some managed services providers in Seattle today, because they're in a situation that it's really challenging to afford those help desk employees and create the opportunities for growth for them. And obviously those are at the highest paid positions. And so, those are the ones that are in the most challenging position in terms of living in Seattle and existing in a big city that's expensive and with all the challenges that come with that. So a lot of the times, the managed services providers are actually outsourcing that function completely. They're paying for an outside help desk. And I don't think that that works very well either.

So I think that the best managed services providers that I get the opportunity to interact with, and a lot of them are through industry peer groups and stuff. Everybody is together, whether physically or virtually. They're providing the entire suite of services that the clients need themselves, which includes security, monitoring, projects, preventative maintenance, help desk, solutions engineering, budgeting. There's probably 25 different things that we list on our website that we do, and that's probably not even all of it.

Josh Dougherty:

You can go look at Kevin's managed IT page on his website afterwards and see all the list.

Kevin Gemeroy:

Please do. And then, I think the other thing that I would say as it relates to this is there are different levels of it. And I think one of the things that we try to spend a lot of time doing with our prospective clients is helping them understand what the different options are, what the different models are, and what the different levels are. Because even inside of managed services, there are probably three or four different levels of managed services, and they're not always going to be the right one for your business.

So we talk a lot about the IT tech. Usually, that's an independent contractor. Maybe there's an additional person that works with them, but it's fine when you're … to your earlier question about when do you start working with the managed services provider? The IT tech model works well for the very little guys, so maybe less than 10 employees. Typically, then there's this IT shop category, which is how the IT tech became successful. They've hired two, three, four people. Maybe there's a little storefront. They're maybe doing some retail repairs and they also do some managed services for some smaller businesses out of there. That works for, it depends on the industry also, but maybe 5 to max about 20 employees.

Then there are these run-of-the-mill managed services providers, which is very much like we have a package. We do the thing in the package. Everybody gets the same thing. That works better for the companies that are a little bigger, unless they're growing really fast or they've got complex security needs or things along those lines. That segment is getting consolidated rapidly by private equity. So the majority of those companies are now going to be owned by a PE firm, which means that you're losing some of the local touch and some of the flexibility, if you will. It's a big company with a spreadsheet behind it.

We like to put ourselves in this strategic managed services provider or boutique, if you will. We're all local. Everybody is Seattle-based or Puget Sound area. And our clients are all local and we operate as one bigger, small team. We have 18 employees, we don't want to be 200, but we try to be laser-focused on strategically what the client needs and then helping execute that. And obviously, that's going to be a little bit more expensive than the one size fits all solution that has moved a bunch of their backend functions to Texas or Iowa or Colorado or something like that.

Josh Dougherty:

So thinking about your space, the strategic partner, when does that become essential for someone, even for a startup that's scaling, what is the ideal fit or the reasons why they might look at that strategic partner?

Kevin Gemeroy:

I think it is entirely dependent upon what kind of business you're in and what kind of employees that you have. We usually start working with companies with about 20 employees. That tends to be a good starting or transition point, but we find more success with the 50 to 100. That's really our bread and butter, I would say. If you're a real small organization, even 10 employees, but you have very high profile clients, highly sensitive information, you're dealing with regulatory requirements, something that is outside the norm, then you might be in a situation that you need that more strategic focus.

On the flip side, we see a lot of companies in the 50 to 100 range that start thinking about, oh, well, because we're going to spend whatever, a couple $100,000 a year on IT, we might as well just hire internally. And the thing that I would say about that is that's probably the biggest mistake that you can make in the overall spectrum. We see companies underbuy all the time, but assuming that you can go straight to this, "I'm going to hire internally," that works if you've got about a half a million dollars a year to start budgeting on employees. And the reason why is because an internal IT team has to have a minimum of three roles. You need a help desk person because that's probably the most frequently needed and accessed person inside of the organization. But the help desk person isn't capable of designing systems. They're not capable of making big changes. They're not capable of developing infrastructure. And so you usually need a systems administrator or a network engineer or systems engineer or somebody like that on a mid-level basis.

And then, you need the planning, the organization, the budgeting, that stuff needs to be done by an IT manager. And so, those are at a minimum, the three roles. In Seattle right now, that IT manager, 120 to 150K a year. That mid-level engineer is probably 75 to 125 depending on what they're doing. And even the help desk person's probably 55 to 70 now. Tack on all the employer side taxes, benefits, and everything that comes with that, and you still need vendors, you still need software subscriptions, you still need tools. You're half a million bucks into it before you-

Josh Dougherty:

Yeah, that's what I was going to say. That's not even the whole thing. There's going to be outside support still.

Kevin Gemeroy:

That's a big mistake. And I would caution companies that unless they're in a position that they're well over 100 employees, probably closer to 200 and they've got complex needs and they're willing to spend half a million to a million or more on internal employees to do it, that's when it's time to start looking at bringing IT in-house.

Josh Dougherty:

Yeah, makes a lot of sense. So speaking of complex needs, a lot of our audience is specifically focused in the healthcare space. And one of the key considerations for these organizations is how do we safeguard PHI and remain HIPAA compliant? How do you work with or how does a managed services provider like you help them do that?

Kevin Gemeroy:

Yeah, good question. So I mean, I think the first step that we do in any client engagement is we start with a comprehensive audit. And I think the same way that if you were bringing in someone from the outside to help with accounting stuff, it makes sense to start with, "Let's go find the problems." We think that makes a lot of sense from an IT perspective. And when we're doing that audit, we're looking at are there compliance requirements? Do we have HIPAA that we have to deal with? Do we have high-tech that we have to deal with? Are there other local, state complex compliance requirements of any sort? And then, we're auditing the system, the processes against those frameworks. So that helps us, essentially that creates a gap analysis and it helps us figure out where are we falling short right from the outset. So then, as we're building a strategy, we're building a roadmap, we're building a budget, we're integrating those gaps and the needs and the priorities of all the different employees and executives and everybody in the organization into a comprehensive IT plan, if you will.

So I think if you're just looking at it tactically like, yeah, there's 17 different security tools that we use in our security stack that help us maintain HIPAA compliance, we have an auditing platform that helps us routinely train employees or ensure that employees are trained and auditing, do we have the appropriate person that's responsible for this and that and the other thing? But I think the biggest thing is just taking a look at it with a fresh set of eyes and going, searching for what are the goals, what are the challenges, and how do we make these two marry up?

Josh Dougherty:

Yeah, that's a really good point. And I think it helps people elevate above the specific problem that they're trying to tackle. You do a good job, I think, of asking those big strategic questions and then moving into, okay, how do we create a budget that actually solves for these challenges? And this is one of the things I like about your processes, audit that gives you a full spectrum view of what's going on, shifting into a budget that can then actually solve those challenges or identify, here's the path of you can't solve everything in year one, here's the path we're going to lead you down to solve those challenges. So can you share a little bit about how you approach IT budgeting with clients and how you think everyone should think about that spend?

Kevin Gemeroy:

Yeah, absolutely. I think this is one of the biggest challenges that we face even sometimes with existing clients is helping them understand that there are different levers when it comes to budgeting and there are different kinds of budgets. So I think, again, the biggest mistake you can make when it comes to IT budgeting is putting everything in one category and being like, "Oh, I spent whatever, $200,000, $300,000, $500,000 on IT." And then, someone looks at this either from the outside or in the CEO's office and they're like, "We spent $300,000 on IT. We need to get rid of these guys and go do this." Well, 150,000 of that was replacing equipment or making major transitions last year, but since it was all expensed in the operating expense, you're not seeing that. And so, I think understanding the difference between an IT operating budget and an IT capital budget is the first and most important step.

IT operating expense is something we're going to spend money on every year. We're going to spend it every year. It's going to be the same thing, give or take, plus inflation every year. Then, I would separate out the one-time costs. So things like big projects, maybe we're moving something to the cloud, maybe we're implementing a new backup system, maybe we're implementing some new security technologies so that those go in some category. I think you want to separate out the software subscriptions so that you see how much you're spending on the software tools because I think oftentimes that gets lumped in with IT costs.

A lot of cases, the software subscriptions should go in different departments. If it's like we use HubSpot for marketing and sales, that's a sales software subscription that goes in a different category for our books than the tools that we use to support our clients. So I think really getting that operating budget dialed is important. And then, the capital budget is and should be focused on large expenses and replacing them on a recurring basis. Even if all of your infrastructure is cloud-based, you still have 100 PCs that have to be replaced. You should be replacing 25 to 30 of them year-over-year on a cycle so that you're not in a situation that you end up having to spend a quarter million dollars to buy 100 new laptops all in one year. Nobody wants to do that. It's better to be in a position that you know when they're up for replacement, you're doing it on a recurring basis.

And so, then it also gives you a little flexibility that if you have a down year and it's like, "Hey, this is not going to be a good year. We want to delay the replacement that we would normally do in Q4. Let's do half of it in Q1 of the following year and the other half in Q4 of that following year." So it makes the whole process a lot more manageable. And I think the thing that we often see is that organizations that we do this audit for don't have any visibility into when anything was purchased, whether it's current or not, and what they should be budgeting when it comes to IT capital expenses for the next five years. We want to flip it from being putting Band-Aids on tech debt to being proactive and making sure that we're not in a position that we have a bunch of tech debt.

Josh Dougherty:

Absolutely. And beyond replacing PCs, it's about we have one, two, three, four priorities strategically for the business. Now we can ladder in our spend over the next three years to accomplish those priorities in a strategic order.

Kevin Gemeroy:

Well, and let's look at this just very simply. Let's say you have a software engineer that's working on a laptop. That laptop's maybe 2,000, 2,500 bucks. Maybe you add all the peripherals in, it's $3,000 or $4,000. That software engineer, you're probably paying $150,000 to $200,000 plus taxes and benefits, so call it a quarter million bucks, and you're having them use that same piece of equipment for probably three to four years. So you're investing $750,000 to $1 million, and every single thing that they do is interacting with this one piece of equipment. If you're trying to delay the $2,000 purchase by another year or you don't know when that tool was last replaced, you're talking about 0.2% of the expense of that employee over the course of the period of time that they're going to use it. Let's not minimize the 0.2%.

Josh Dougherty:

That's a really good point.

Kevin Gemeroy:

Let's maximize the ROI from the million bucks we're going to spend on this engineer. That's what we should be focused on.

Josh Dougherty:

I had never even thought about it that way, but it's a great explanation because it makes it crystal clear why you would want to be focused on those pieces.

Kevin Gemeroy:

Yeah. That's why we do proactive instead of reactive.

Josh Dougherty:

Yeah. So as we think about closing out the conversation here, you've shared a lot of knowledge. I'd love to have you share just what are some of the sort of questions, maybe the top three questions someone should ask as they're evaluating a new provider to make sure that they know their stuff.

Kevin Gemeroy:

Yeah, I think it's really good to know tell me about your model. Help me understand what are the different services you offer. Are they provided by your employees? Are they provided locally or are they outsourced? Help me really understand that so that as I'm making a list of the pros and cons behind the different options that I have, that I really understand what your service package includes versus these other folks. So I would say that is a great conversation to have. I think you should ask what kind of clients do you typically work with? It's a challenging situation when we have a 5- or 10-employee company that wants to work with us. We'd love to be able to help them, but our solutions are geared towards the 20- to 100-employee clients that we typically work with.

Now, sometimes those tools and techniques and methods, they scale really well to 200, 300, 400, depending on what kind of business it is and how complex the needs are. But it's rare to have that 5- or 10-employee company be okay with us doing the same thing that we would want to do for a 50- or 100-employee company. So I think understanding both the size of businesses that they like to work with, as well as the types of businesses like industries. We do better with more complex businesses. We do better with ones that have complex security requirements or are dealing with something like HIPAA or a high-profile company and are receiving annual audits from an outside accounting firm or have to have complex cyber insurance. Those are the ones that we tend to work better with.

And then last but not least, I think it's really important to get the sense of partnership. Who am I going to be working with? I'd like to meet that person. Who are the people that I'm going to be interacting with, that my employees are going to be interacting with on a regular basis? If you don't have a human you can talk to and be like, "Hey, Josh, this isn't working. I need your help." We hear all the time from clients that are working with these private equity-owned or backed MSPs that they have 20 different help desk people that they talk to and they don't have a dedicated account manager and they don't have a dedicated tech that they can work with. And so, it's like, I'm working with this nameless, faceless, very large organization that happens to sell me copy machines and printers and stuff too.

That's probably not going to work. Most of your employees want to be able to talk to a human. And the business owner, the primary contact, the executive, they want to be able to know who the humans are that they're working with and understand that they've got shared values. And I think that that's easier to do when you can sit down face-to-face, whether Zoom or in-person and be able to have a conversation like you and I are right now.

Josh Dougherty:

Absolutely. 100% agree with that. So on that note, thinking about how people can connect with you as we close out the conversation, can you share maybe what's the best way for people to stay up to date on the stuff that you're thinking about? And then, if this conversation has helped nudge them towards like, "Hey, we need to actually think about how we're approaching our managed IT or approaching our IT generally as an organization," how can they get in touch with you?

Kevin Gemeroy:

Yeah, absolutely. Well, we've got this great marketing firm called A Brave New that helps us create these amazing blogs and LinkedIn newsletters and all this sort of stuff. So we would love it if you visit our website, see what we're writing about, see what we're ... We're doing a bunch of videos right now, so see what we're shooting videos about. LinkedIn, we're posting on LinkedIn on a regular basis. I am as well, so love to connect with you on LinkedIn. If you'd like to reach out, you're interested in having a conversation about managed IT services for your business, you can either fill out the form on our website, on the contact page, you can give us a call, 206-284-6200, or send me an email, kevin@dynamiccomputing.com. I would love to hear from you.

Josh Dougherty:

Awesome. We'll include those things in the show notes so people don't have to listen over and over as well. But Kevin, thanks so much for coming on, sharing a bit of your knowledge and your expertise. I really appreciate it.

Kevin Gemeroy:

You're very welcome. Thanks for having me and a little side plug. I know a great marketing guy. His name's Josh. He runs a great firm. Really glad that we've had the chance to work with you and have you and your team help us build our brand. It's been a great partnership and excited for it to continue.

Josh Dougherty:

Thanks so much. Really appreciate it. And with that, we'll wrap up the show. Thanks everyone for joining today.

Kevin Gemeroy:

Thank you. Thanks for having me.

Josh Dougherty:

Thanks for listening to this episode of A Brave New Podcast. Go to abravenew.com for more resources and advice on all things brand. If you enjoyed this episode, show us some love by subscribing, rating, and reviewing A Brave New Podcast wherever you listen to your podcasts. A Brave New Podcast is created by A Brave New, a branding agency in Seattle, Washington, that crafts bold and memorable healthcare brands. Our producer is Rob Gregerson.