Another update from servicePath UK on the rapidly and continually changing economies of IT and Telecom market, specifically affecting VAR/Resellers.
From the disruption of Cloud to the consumerisation of IT, the business models (VAR, Reseller) of the last few decades are not as effective to meet customers business needs and therefore become a less sustainable business to be in.
Businesses are less interested in just procuring hardware, software or professional services from their suppliers piecemeal. They are looking to consume services that meet their requirements, reduce the capital expenditure, and have the ability to scale up and down with changes in their industries. Importantly, they are not afraid of moving from their existing suppliers to make this leap. If you are “just a VAR” your relationship may not be a solid as you think.
There is a growing trend in the industry to add more subscription and annuity revenue in what is being coined the Subscription Economy. With this trend, are you prepared to for the transformation of revenue model and business structure? Do you have the right expertise to execute this transformation? How are you going to ensure success?
What does this mean for VAR's Wanting to Make the Change
First and foremost, this means a transition of your revenue model and this impacts virtually every function within your business, financial reporting, operations, service management, sales approach, toolsets and cashflow. Some companies are able to make the leap very quickly (www.cnet.com/uk/news/adobe-kills-creative-suite-goes-subscription-only/) but it is likely that you and your existing customers will want to do this over a period of time.
This is a complex endeavor, but we think there are three focus areas to drive a successful result:
1. Revenue Model
Evaluate your target market to establish the products and services you wish to offer to market. As you have an existing customer base, then you have a rich vein of information of which to take advantage of. Identify new revenue streams to compliment and extend from existing ones
Develop your subscription/annuity offerings
It is not about the “project”, it is now about the service lifecycle: strategy, design, deploy, operation, decommission…. Your teams need to shine at every stag
Invest in the platforms, PSA, RMM, Cloud, Storage, IP Voice that support your teams in delivering these new services
Look to automate as much as possible to deliver the right and most consistent service and to protect your margins.
- Ensure the new offerings compliment your core business and can drive pull-through revenue
- It is not about the “project”, it is now about the service lifecycle: strategy, design, deploy, operation, decommission…. Your teams need to shine at every stage
- Invest in the platforms, PSA, RMM, Cloud, Storage, IP Voice that support your teams in delivering these new services
- Look to automate as much as possible to deliver the right and most consistent service and to protect your margins.
If you don’t have the capability in-house or financial backing to make the right investments, then look to what label existing services, the channel and marketplace for this is thriving from datacenter, co-lo through cloud to integrated voice services.
Define the collateral, price points and processes to support your activities.
Continually invest in your products and services, some research on MSPs and found the best-in-class companies invested twice as much in new services compared with the average MSP.
2. Business Structure
This is absolutely critical. Ensure they correct incentive structure is in place to put the right focus on the new services your are launching. Don’t just incentivise the initial deal, the growth of the relationship needs to be incentivised. If you don’t, your team will continue to sell what they know (and are incentised to)
Create a separate business unit which will be responsible for the end to end (Marketing, Selling, Delivery, Operations and Billing) of your Managed (“annuity”) Services.
Map the end-to-end service lifecycle for the customer from first-touch through to contract renewal. Ensure your teams know where the “hand offs” are to ensure customers don’t fall into those chasms.
In order to cultivate long-term customer relationships that generate recurring, predictable revenue and profit you will need to continually invest in your people. In the short term, you may need external expertise with knowledge of service management, business models, structures and transformation approaches.
There will be a significant investment in re-skilling existing staff and it is more likely that you will need to bring in new Sales, Delivery and Operational headcount that has experience in the MSP marketplace.
Longer sales cycle, be able to articulate the value of your offerings to solve your customers business requirements
Deliver ongoing services and not just outcomes or logistics
In summary any change is a big step but if you go about it in a considered, timely manner and take your customers on the journey with you then a more profitable, sustainable business with deeper customer relationships awaits.
Good Luck on your journey.