Making the Transition to the Hybrid IT World
With cloud services bridging the traditional silos of IT and telco, MSPs and Resellers are seeing increasing pressure from customers, manufacturers and distributors alike to broaden their portfolio outside of their core competency.
There’s promise of increased revenues and retention, but significant risk is associated with expanding the service offering without having tenured experience on staff.
This ensures the customer relationship isn’t compromised as a result of missed commitments or poor performance.
Analysts agree that while very few customers are well suited for a 100% cloud-based solution, neither are customers effectively leveraging technology when they are operating in a 100% premises-based IT environment.
Likewise, it’s not practical or recommended for Resellers and MSPs to incorporate every product available in the market into their service offering.
Continuing to limit the product set to only the items in which they have significant expertise will limit growth and sustainability for business in this ever-evolving marketplace.
Whether you are an experienced MSP looking to increase your portfolio of offerings or are just beginning your cloud journey, there are several items to consider that can improve the outcome for your business by leveraging complementary product offerings to your core services, which will ultimately expand your business.
Business Drivers and Risks
The single biggest benefit to considering the prospect of expansion outside of your core business model is to keep the competition out of your customer base.
This drives three desirable results to your core business: increased margin on core product sales, increased close ratios for the sales team, increased retention of existing customers, and adding to (or building) a recurring revenue model – all of which result in an increased overall profitability of the business.
Risks associated with expansion include significant investment with long-term/questionable ROI and poor partner performance resulting in a bad customer experience (this could put even core business revenue at unnecessary risk).
These risks can be mitigated by choosing the right engagement model and effectively vetting potential partners.
Here are the four standard engagement options that have been adopted in the industry. It is important to note, these engagement models could differ based upon your practice areas.
For example, if you are an MSP with a core competency in security, your approach could be different when looking to add an IaaS practice.
1.Build It (in-house)
The benefits of building the products in-house are that you can maximise margin and have 100% control. The challenge with this engagement option is that most Resellers by nature prefer to leverage industry-known brands with significant investments in R&D.
The upfront investment required is significant, and the return on that is typically at least 3-5 years out, making this the least desirable option for most Resellers and MSPs.
2. Build It (white label)
The benefit of white labelling solutions for your clients is that you can expand the product solution represented under your company name without significant investment.
Typical concerns with this model include the increased risk associated with contract liability and billing responsibility for the services, as well as collections against the billing.
Tier 1 support is generally also required of white label partners, so some level of investment and/or training to ensure your staff is prepared to handle this responsibility is necessary.
3. Buy It (M&A)
Finding the right company with expertise in the area where you want to expand your core product set can be a solid option for expanding the service offerings of your business.
This option can be challenging and time-consuming; but, if you can find the right company for the right price with the right product set and a culture that aligns with yours, it can return significant dividends.
When none of the above-mentioned options seem to be the right solution (at least for now), finding a solid partner can allow you to complete the technology solution for your clients without taking on significant risk or responsibility.
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It can be difficult to effectively evaluate potential partners and suppliers. The vast majority of business owners don’t have the time available to effectively uncover weaknesses of potential partners.
Typically, a significant amount of time is spent on sales and marketing, occasionally technical support as well, but there are critical areas of focus that are often overlooked.
A poor-performing partner can be as expensive (or more!) than bringing on a bad hire. The negative impacts to your business will extend well beyond separation with the partner.
- Get a solid understanding of the executive team members, roles and responsibilities, and tenure with the company
- Review the financial position of the company and exit strategy
- Ensure you have access to the necessary members of the executive team for escalation assistance and to keep up-to-date with changes in direction or strategy
Sales and Marketing
- Discuss the competitive landscape and unique differentiators
- Review the sales engagement process (Is the opportunity registration required? Rules of engagement? Level of investment/support provided to partner?)
- Review all customer-facing materials (sales materials and contracts)
- Review products and services, as well as a percentage of sales and revenues for each
- Review backbone architecture (hardware, local redundancy, geo-redundancy, carrier diversity, etc.)
- Review product road-map and hardware refresh policies (i.e., do they replace backbone hardware at MTBF, manufacturer EOL, or upon failure)
Operations (Provisioning & Project Management)
- Detail process from contract signature to successful implementation
- Detail communication process during provisioning
- Review escalation process
- Review expectations of reseller/MSP in the support process (Can reseller engage on customer’s behalf? Is reseller required to provider tier I/II support?)
- Review SLAs by product, including actual historical performance against the SLAs
- Review how technical support is handled in detail (Many companies offer 24/7/365 support, but often that support is outsourced with “on-call” techs outside of business hours. How are escalations handled?)
- Review billing process and responsibilities
- Review and negotiate contractual requirements (whether white-label or partner)
- Review payment timeline and dispute process
- Review change management process and policies
- Review measurement methods and reporting to ensure commitments are met
- Ask for and check references
Note: These discussion points are primarily targeted to smaller companies (under $250M in annual revenues).
As an MSP or Reseller, you have many options available to allow you to expand your service offering and round out solutions for clients – and keep your competition out. Competition looks a bit different today than it did even 18 months ago.
Many telcos are setting separate hardware quotas for their direct sales reps, “born in the cloud” companies are representing hardware lines as well, and new breeds of companies pop up daily. All of them are anxious to increase their overall margin and representation within a single account.
Your customers are looking for business partners that can recommend a complete solution that aligns with their business objectives.
There isn’t a single right answer for every Reseller or MSP; but you should (at least) plan a solid defence against the evolving landscape of the sales engagement model and customer expectations of you – their trusted partner.
The time is now to help them cross the bridge with one of these hybrid cloud options.
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