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NOVEMBER/DECEMBER 2006
Griping About Managed Services
Hopefully you have seen this...the CRN article from 10/30/06, "Managed services is not for everyone - more VARs Gripe about managed services hype". Given all that has been invested in managed services over the past two years, this article deserves some attention. First of all, whenever someone writes an article about a reseller and refers to them as a VAR, I immediately wonder if they have ever been inside the doors of a "VAR". Second, when they start talking about revenue generation as the final metric of success, the last bit of respect I might have had for them vanishes into thin air. If you haven't read it, you should... www.crn.com. No offense to Dan Neel, but there is much more to this than the article would have you believe.
Is Managed Services For Everyone?
"Everyone" is a big group of companies, even if we are just looking at the US market. Perhaps it isn't for everyone, but Neel's article doesn't seem to focus on the right issues in my opinion. The author provides quotes from resellers who have tried to implement a managed services program and have decided it is not for them for one reason or another. He reports a double digit decline in the number of companies planning to actually implement these services over the next year. His first interview points to the "real goal" being a profitable services business. He say's, "Managed services is just another distraction". His article then goes on to identify the four big issues:
- Distraction from their customers
- Disagreement with the MSP economic model
- Loss of profits
- Technical problems
I believe the author and the resellers cited in this article, are missing the bigger issue.
1. Why is the MSP Model Failing?
First, there are many definitions of MSP and a number of different products available to support a managed offering. The failures I have seen over the past year are largely due to the reseller's dependence on a particular appliance rather than the MSP model. I have heard all the complaints about the MSP appliances and software offerings, how "They don't give us what we need"," They take too long to get up and running", and "They don't provide much value". Focusing on the product is a big mistake. MSP is not a product, its a service. The products are not the program, so when a reseller buys into a product pitch on managed services, they are heading for failure. Second, in reading much of the MSP marketing literature provided by the companies that make these devices, it is clear to me that there is a misunderstanding as to how the reseller must sell this offering, what the end-user is really going to want, and how much money they are prepared to spend. In the final analysis, it is not the MSP idea that is wrong, it is the methodology being used to attack the market. The right vision with the right program, supported by the right tools will succeed.
2. Left Out of the Article - the Real Metrics
If you run or manage a reseller business, you know that top line revenue is not the real metric, nor is your end goal to build a profitable services organization, as stated in the CRN article. Today's fad may be building the MSP while five years ago it was the ASP. Ten years ago people were talking about getting rid of the products altogether and going all services. If you look at the results of the past fads, there are some good ideas, but the net result is failure. Companies that took a balanced approach to create specific practice areas supported by a strong value proposition succeeded. The right goals focus on gross profit (and ultimately net profit), financial stability as projects start and stop, and more importantly the valuation of the company. CRN's article fails to mention these things, leaving the reader focused on specific clients and projects, not long term business strategy. Its a very short sighted view for the business owner. In otherwords, you can have a great year, have clients that love you, but in the end, there has to be an exit strategy and most of the reseller owners I know haven't had a good one since 1999.
3. Where Is The Success
The success of MSP is in redefining it and taking a look at what the client really needs. I was in a webinar just yesterday looking at a new MSP offering. The speaker spent the entire session talking about the products and features. At the end of the product overview one of the vendor representatives asked me what I thought. My comment, "The product looks good, but it is the marketing plan that will convince me". If I look at all of the resellers who have failed to build an MSP offering this year I have one consistent theme; the reseller thought they were buying an "Out of the box solution", providing monitoring and management to the SMB market, and looking for a quick hit to big success. Success is in realizing that the SMB client is not interested in monitoring or management. They are looking for business continuity, data integrity, and reducing risks related to their dependence on IT. When resellers take the time to build the right program, supported by the right MSP tools, an offering emerges that is both profitable and in demand. Its not about the product, its a risk mitigation (security) program that sellsl.
4. What the Future Holds
Company valuation and quarter over quarter gross profit growth should be your focus. A list of ongoing projects, pipeline, and staff augmentation contracts is not enough to make your company more valuable to a buyer, and at some point you have to consider your exit strategy. The chances of finding someone to run your company at a reasonable price are low. The alternative is to build up your company value and sell. To do this, you need contractually reoccurring revenue, financial stability, and a business plan that shows vision. Is the MSP for everyone? Maybe not, but there are not that many things out there that are going to give your company the value needed to move to the next step in the midst of product commoditization.
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