Recurring revenue focus

The best long-term option for South West Communications has always been to adopt a recurring revenue model where possible to great advantage, says Managing Director Brian Lodge.

Recurring revenues have for a long time featured palpably in South West Communications’s business interests. As a result of this tactic the company continues to garner annual percentage increases in turnover. “Sales are up considerably and this is being led by cloud,” stated Lodge. “We closely monitor our monthly growth in income and some of the figures are remarkable with capital equivalent monthly sales up by 160 per cent in the last 12 months.” 

A step-change came when the company built its own on-premise data centre. “We invested in a serious facility on our site purposely built to handle a large amount of cabinets with full resilience in power and connectivity,” explained Lodge. “This again was a monthly revenue model, so our business gravitated more and more towards recurring revenue. Lines, minutes and connectivity were the next obvious step and, although this is now turning into bandwidth and SIP, it is still growing and adding to our model.”

There have been many significant change-points for South West Communications over the years but migrating its base to the cloud is its biggest opportunity. “We’ve had cloud telephony for years but it’s only taken off during the past 24 months,” noted Lodge. “Cloud is a natural and welcome progression for us. We have the billing infrastructure and the financial solidarity to spread what was a one-off capex profit over a three or five-year period. It fits our business approach.”

South West Communications is now a £24 million turnover group of companies with a 140 headcount. Its customer profile is wide ranging with installed sites from two to 5,000-plus users. Almost from day one South West Communications has sought to form strong bonds with its local business community via an enduring relationship with Exeter Chiefs Rugby. “We have two directors who were players with the club and we have been its main sponsors for 25 years,” commented Lodge.

“The business demographic of the crowd fits well with our customer base and it gives us a local and national profile that normal marketing campaigns cannot compete with. It’s nice to be associated with winners and, at the time of writing, they are at the top of the Premiership, so it’s money well spent.”

The challenge is mass market commoditisation of services. It’s also our biggest opportunity to do the job better than anyone else

Lodge’s priority is to raise South West Communications’ game and ensure businesses work with the company for its own brand ethos rather than the products it provides. “The challenge is mass market commoditisation of services – but this is also our biggest opportunity to do the job better than anyone else,” noted Lodge. “We are mid-way through a CRM upgrade to add all the bells and whistles to our support desk. In truth, it’s about people and we have a wealth of talent that with further investment in time and training will make a real difference to how we deliver our services in the future.

“We have already made some significant inroads into lifting our game and reinvesting in staff by launching an apprenticeship scheme with the support of Exeter College that refocuses employees of all ages. This approach has been recognised in the awards we have won this year and Exeter College even showcased the model abroad as an example of how companies can do apprenticeships in a different way.”

To say that Lodge himself approached the comms industry in a different way than most would be an understatement. He left school at 16 and started a four year apprenticeship at a local yacht builder in Devon. He qualified and went into commercial boat construction before jumping ship and moving to Australia on a working visa. “I could build a yacht from a set of plans but as far as telecoms goes there was not much synergy,” stated Lodge. “That said, I was practical and could do most things if I set my mind to it. When you leave education early life skills come quickly.”

South West Communications CEO Tony Rowe OBE comes from a similar mould, noted Lodge. “We could learn the technical side of things as we went along, but we had common sense which seemed in short supply from BT back then, and that was our only real competition. It was hard work, but as a private sector company with ambition and unencumbered by legacy monopoly processes we couldn’t lose.” 

South West Communications began its commercial life in 1983. Rowe had previously become involved in CB radio as part of his marine business and got into computers having set up a small shop in Exmouth. After Rowe serviced Lodge’s father’s boat engine the pair became acquainted in business. “We had a few domestic phones in the shop got the opportunity to supply a full business telephone system to our accountants at the time that BT relinquished its grip on the UK market,” added Lodge. “Tony saw the opportunity and we resold the Detwe E12 system. One of the original members of the sales team is now our Sales Director, Sarah Flowers. There are not many sales people who can claim to have hit or beaten target constantly for more than 30 years, but Sarah is one of them.”

Both Lodge and Rowe soon realised that the best plan was to put profits back into the company, so they started their own finance organisation. “It was genuinely ours and not a white labelled solution that others were offering at the time,” said Lodge. “This started us on the recurring revenue road and, when combined with our support business, it generated a significant contribution to our bottom line.” 

The case for recurring revenues remains overwhelming and only those resellers who adopt this model will be in the running, believes Lodge. “Resellers will only survive if they build a monthly model because customers want it wrapped up, delivered and supported at a fixed cost,” he said. “If you cannot add value the customer will bypass you and go direct.” 

To survive resellers will need to become ‘mini MSPs’, it’s a move every VAR is going to have to make, believes Lodge. “Aggregate your services and wrap them up in a monthly cost with full support and proactive management,” he commented. “The carriers, direct selling manufacturers and private equity companies building fast to sell cannot offer that kind of service. Maybe there should be a new acronym of VAMSP (Value Added Managed Service Provider) – after all, we’re short on acronyms in our industry!”

When you consider the big and emerging trends of most interest to Lodge right now a new rash of acronyms is certain to break out. “We are moving towards more multi-media and mobile communication where voice is only a small and part of the solution,” stated Lodge. “I am a firm believer in the smartphone as the weapon of choice for business people, and applications on devices are the future of our industry.  

“My kids don’t know what dial tone is and run away from a ringing landline. They are now old enough to be my customers and they are not changing their communication habits just because their dad used to sell desk phones. Everywhere I go the buzzword is ‘disruption’ so it’s fair to say that agility more than anything else is now the key to any strategy in this business.”

Just a minute with Brian Lodge...

Role model: 
A guy renting sunbeds for five euros in Spain. I did the maths and it was the best low cost of sale recurring revenue model I’ve ever seen 

Your greatest fear? 
Personal failure. It’s OK for everyone else! 

If you weren’t in comms what would you be doing? 
Space has always attracted me. It’s the final horizon and I like horizons

One example of something you have overcome: 
The Monch next to the Eiger in Switzerland. I climbed it with my son Sam and some marines. That was a tough father-son learning curve

Tell us something about yourself we don’t know? 
My favourite film is Love Actually

The biggest risk you have taken? 
I put my hand in the mouth of a live 200lb shark when fishing in Florida to get the hook out 

Name three ideal dinner guests: 
My wife and two kids. That doesn’t happen often and their knowledge and opinions with no background agenda are priceless  

Industry Bugbear:
I would give everyone fast and reliable access to fibre connectivity rather than squeezing the last bit of life out of a ropey bit of copper. Let’s wake up and catch up!

How do you relax when not working? 
I’ll let you know when that happens 

Top tip for resellers: 
Never let anyone bill your customers for you

What possession could you not live without?
I’ll always have a boat, or if things get tight just something that floats 

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