The 1M1M Deal Radar 2010: Xvand ,Houston,Texas

Xvand Technology is the provider of IsUtility, an Infrastructure-as-a-Service (IaaS) solution. The company invests in servers and technical support and delivers enterprise-level IT resources by selling access to clients as a utility. The aim is to eliminate the costs and risks of buying and managing an on-site IT system and to help clients put more money back into their businesses.

Victor Grinshtein, cofounder and president of the Houston-based company, had thought about the idea of remote IT support for small businesses when he owned Microcomputer Power, which sold, integrated, and supported technology systems for Fortune 500 companies and government agencies in Texas. He grew the company to $80 million in annual revenue and eventually merged it with AmeriData/GE Capital Information Technology.

One day at Microcomputer Power, he received a call from a client, the Texas Health and Human Services System, which was having computer issues in its Pampa office. After trying to diagnose the problem over the telephone for two hours, Grinshtein realized he would have to visit the site. So he flew from Houston to Dallas, made a connecting flight to Amarillo, rented a car, and drove two hours to the tiny Panhandle city. After looking at the problem computer, Grinshtein immediately saw that the user had inserted the computer diskette upside-down. So he flipped it over, and the computer began to work, resulting in a $2,200 bill to the state of Texas for unnecessary travel and man-hours. At that point Grinshtein knew that there had to be a solution for centrally taking care of computer systems.

Two engineers who had worked for Grinshtein at Microcomputer Power approached him in 2000 to start Xvand Technology. At the time, he still felt it was a little too early for the concept, and knew he’d have a tough time educating clients about the benefits. But once “[you] have the entrepreneurial bug, it’s hard to let it go,” he said. So Grinshtein used the proceeds from the sale of Microcomputer Power, as well as investments from his two former engineers, to start Xvand Technology.

In addition to the IT infrastructure, Xvand has offsite data backup and 24/7 client support. The product uses a Windows interface to allow for minimal training. The company charges per user, per month. Virtual desktops are customized by the specific applications each user uses, and related costs are adjusted accordingly.

Because Xvand’s business model was so new when the company was launched in 2000, Grinshtein says the first round of customers were mostly acquaintances who were willing to trust the idea of outsourcing their IT departments to him. Xvand initially targeted customers such as physician practices and small law firms that had just a few employees, were extremely client-focused, and had no time to think about IT.

As the concept of cloud/utility computing took off, Xvand’s client base expanded to larger operations such as energy companies and midsize law firms. Now, Xvand’s clients — most of which are based in the Houston area — are typically companies with between 40 and 300 computer users. Today, as the concept of cloud computing becomes more common, upper-level management are beginning to understand that there is a viable alternative to constantly upgrading and repairing an in-house IT system. The top target segments are small to midsized professional service organizations such as legal firms, commercial real estate companies, financial firms, and engineering firms. Being based in Houston, Xvand also caters to some oil and gas companies. It has over 1,000 users, including Moody Rambin Interests, Coats Rose, HJV & Associates, and Whiteflash.com.

The market for delivering the entire IT system as a service has grown exponentially in the past two or three years. In 2005, Xvand was possibly the only company in Houston using this delivery method and one of a few dozen, such as External IT in Richardson, Texas, and DirectPointe in Utah, nationwide. Now, there are dozens of IT consultants including cloud solutions into their service offerings. Not everyone is sure, though, that moving everything to the cloud is a good idea, as we saw in last week’s Deal Radar post on Appirio. And in a recent post on his Service Oriented blog, Joe McKendrick talks with a few people who object strongly to the idea of IT as a commodity service.

Xvand believes that its main diferientiators are its 30 day-month-to-month contracts and its experience – Grinshtein says that cloud computing today is so broad and nebulous at times that some of these IT consultancies are literally testing their process on the client’s time, at the expense of the clients. Xvand has been around for 10 years, and its engineers have been testing and perfecting its process since the mid-1990s.

Annual revenues are $2.4 million. Owing to the recent economic downturn, Xvand lowered fees for some clients last year, as many of them saw revenue take a hit. The company offered a month or two of free service or discounted user fees for those that were struggling financially. Those concessions did put a small dent in revenue, but the company expects revenue to increase by 10% to 15% in 2010 as the local economy appears to be recovering. Xvand is entirely self-funded with revenues. As mentioned above, Grinshtein used the proceeds from the sale of Microcomputer Power, as well as investments from his two former engineers, to start Xvand Technology. He does not plan to seek outside funding.

Xvand recently implemented a client-training program in which its training specialists visits clients at their offices and deliver step-by-step training on common applications such as Microsoft Outlook and Excel. “What good is all this technology to our clients, if they aren’t optimizing these software applications to its fullest potential?” asks Grinshtein. In short, the growth strategy centers on a client-centric program to help clients become more productive, not just by eliminating computer-related downtime but by working with each client individually to enhance his or her efficiency. Xvand finds this aspect crucial in today’s environment, in which much of the IT support is managed remotely. The company plans to continue to grow and is not thinking about an exit.

Recommended Reading
SaaS Strategies Among IT Consultants and Outsourcers
Value-Creation, Experiments, And Why IT Does Matter (from MIT Sloan Management Review)
Deal Radar 2008: Elastra

This segment is a part in the series : The 1M1M Deal Radar 2010