As the Greek philosopher Heraclitus famously said:
“The Only Thing That Is Constant Is Change”
and how true this is, especially when it comes to the IT industry.
As a sector, we’ve constantly had to re-invent ourselves. From the days when as resellers we simply sold hardware and software, through to reinventing ourselves with the services around that to install, specify and support networks. From the days of break-fix, with engineers constantly jumping into their cars to go and fix broken computers and networks, through to today’s remotely managed and proactively maintained services.
The pace of change in our industry – and the need for adaptation of our business models accordingly, if we are to remain relevant and profitable - has always been a key challenge for IT services companies. And with the changes we’ve seen in recent years, with falling hardware margins, the advent of the public cloud, the opportunity for many VARs/MSPs to launch their own private cloud models and the ever-growing challenges and opportunities around cyber security, there has never been a time of more change in the industry.
But for those IT services companies embracing the changes, there is the potential for a highly lucrative, sustainable “recurring revenue” business model. The benefits of the monthly recurring revenue model are well documented and of course include enjoying a known and pretty much assured monthly income level, which lessens the constant pressure of finding new business every month (albeit there’s much to be said to taking some decent project work orders too – but the difference is these now form the “icing on the cake” rather than being a necessity to pay the overheads). And of course the strength of your renewable contracts database is fundamental to the valuation of your company moving forward – this will be paramount to any investor’s decision to part with their money, whether you’re looking to ultimately sell the business or for an investor to fund your next stage of growth. Other business owners like the model because they are looking for the holy grail of a “passive” income to fund their retirement once they have put in place the right people, technology and operational processes. They know that amongst customers there is generally an apathy to change, so once customers are securely signed up and running on their cloud platform, that - barring major disasters – they should be able to retain the vast majority those customers for the foreseeable future.
So it all sounds great – why wouldn’t you transition your business to cloud service provider (CSP) status? Well there are some key challenges in making the transition successfully and, most importantly, without running out of money. Sadly there have been a few high profile cases in the trade press recently of resellers who have attempted the transition and found that they have opened up a cashflow black hole that over time, and despite their best efforts, ultimately leads to bankruptcy.
Why is this?
Well, the owners of many of the VARs and MSPs we work with come from a technical background, and as such their understanding of the operational requirements of service delivery and the detailed technicalities needed to deliver their services are second to none. However, we often see that this focus on all things technical can be at the expense of the commercials.
Making a CSP business model work is all about scale and leverage. You MUST have a certain number of customers to reach critical mass and move from a loss-making to a profit making business model. The faster you can do this, the less time you will have to fund the cashflow deficit that is the difference between your income from customers and your overheads to deliver the service.
All too often MSPs and VARs arrive at our door having invested vast capital sums into data centres, infrastructure and engineering resources and now have a fantastic (but highly expensive to run, and fast depreciating) infrastructure set up. It’s at this point they turn their mind to acquiring customers. And that’s where the problems start. There seems to be an assumption that your current customers will all transition to the cloud infrastructure immediately, hence starting to absorb all those expensive overheads you have just invested in. They won’t. Much as you (hopefully) have a great relationship with your current customers and they trust you when you tell them the cloud is the right way to go, if they invested in a refreshed in-house hardware infrastructure over the last 1, 2 or in some cases even 3 years, then they will be looking to get their money’s worth from that before they spend any more money. After all, they have bought this infrastructure outright, on the basis it will last them for a number of years, and budgeted accordingly.
And this is no different to the decision making process that your prospective customers will also be going through. Only in the case of new customers, with whom you don’t have an existing relationship, you also have a plethora of other challenges to overcome too. Not only are they generally only looking to transition to the cloud when their current IT assets are fully depreciated, but in this case, you are going to have to win their trust that the cloud is safe and that you are the right organisation to partner with. And this is a big journey. Once you are hosting a customer’s infrastructure, they are effectively trusting you with the future of their business. Because if you lose their data through technical incompetence or you go bust then they won’t have a business. So you see, this is not a decision they are going to take lightly. Now add into the equation the fact that customer apathy, which I talked about earlier being an advantage to you long term in retaining customers, in now actually going to work against you. These prospective customers will already have an IT supplier, and in their mind the easiest and least risk option will be to do nothing. So you have to overcome that perception and show them why it would be better for them to go through the perceived aggravation and risk of changing to a different supplier and service.
And of course while all this is going on, and you’re gradually converting your current customers to a cloud model as their next hardware refresh comes due, so you are actually further opening your cashflow deficit, because now instead of taking a good size order for a replacement infrastructure and installation, you are instead taking a small monthly payment from them.
So to successfully transition to CSP, the most critical thing you can do, on day one, before you’ve invested in infrastructure and technical people and worked out all the technicalities of service delivery, is to formulate the plan of how you are going to acquire customers for your CSP model. I cannot stress enough how the process of customer acquisition is just as difficult and time consuming, in fact more so, than the vast technical project to setup your datacentre and/or service delivery infrastructure.
You must understand who your service offers the most value to, how you are going to package it to make it most appealing to that demographic, how you will find the decision makers in your chosen demographic and how you are going to approach them to start the long “courtship” process that – if handled skilfully enough - will ultimately lead to them becoming your customers.
As I discussed in my recent blog “Account Management is not Selling”, this is a completely different skillset to account management, and one that is now in the highest demand of all in the channel, according to CRN’s recent salary survey, which revealed sales and business development positions are now commanding greater salary increases than those of technical professionals.
Luckily, for those VARs and MSPs for whom employing a £150k p.a. experienced IT services sales professional is not an option, all is not lost. Virtuoso Consultancy deliver outsourced sales, business development and marketing experience that is IT sector specific, straight to your door.
Over the last 3 years we have built and delivered highly effective and profitable campaigns for our customers whether they are offering private cloud/hosted desktop solutions, public cloud services, MSP services, MSSP services or traditional IT infrastructure services. During this process we have identified and built a “Value Proposition” for our customers, having identified target markets where their services or product offering is going to have tangible commercial value.
We have then built the database required to get the contact details of the decision makers within their target markets and chosen geographical area; then we have built and delivered the campaigns required to engage with and obtain the business of the identified target audience, therefore achieving the highly specialised task of undermining and replacing their existing IT Services supplier.
Working on a flexible basis around the needs of your business and supplying the skills and expertise required in order to succeed on your behalf, we have existing, highly effective and proven sales, marketing and business development campaign modules ready for your business to use which include models for sectors as diverse as financial services, pharmaceuticals, recruitment, accountancy, law, independent schools, hospitality and many more.
We know how to build these models, they are “current” and continually evolving, we know how to target and speak to the decision makers in your target markets and most importantly, we know how to grow your business and make you money!
If this post has resonated with you and you would like to explore how we can help you achieve your growth aspirations, then please do not hesitate to contact myself or my colleague Jane Gatfield on 0118 947 1010, or email us at andrewb@virtuosoconsultancy.co.uk or janeg@virtuosoconsultancy.co.uk
For more information about our services please visit www.virtuosoconsultancy.co.uk
To read more posts covering all aspects of sales, marketing and business development for MSP’s and VAR’s, please visit our blog; http://it-business-growth-strategies.blogspot.co.uk/
DOWNLOAD THE WHITE PAPER
This post forms a small portion of a white paper I have written covering The Art of The Approach, a specific sales based white paper written for the IT Sector. To request a copy please email andrewb@virtuosoconsultancy.co.uk
