Thursday, February 21, 2013

Understanding the True Business Value of PSA

We normally think of Professional Services Automation (PSA) software as a tool for tracking the time and cost of technical resources to ensure timely and accurate customer billing for IT services rendered. However, in our VPG session this week, James Foxall, CEO of Tigerpaw Software, a CRM and service management software provider, gave us all a lesson in how to think differently about PSA as a toolset and how to operationally integrate the tool into an MSP or CSP business to drive higher growth and profitability.


The session, titled "Nine Proven Tactics to Increase Profitability", was a grand tour of business best practices for how to better organize, optimize customer experience, manage cash flow and continuously improve efficiencies with any software tool - not just Tigerpaw. The presentation was pretty extensive - you would really have to view the entire session to reap the full benefit (a recorded session is available here).  So let me summarize my own take-aways here.

Take-away #1:  Think of technicians as attorneys. Their time equals your money (your cost of service delivery). So set minimum and rounded-up cost points (1o or 15 minute intervals) and track the utilization of technicians as a business resource. Build this cost basis into your business model and automate the collection of cost data and the invoicing of service fees.

Take-away #2:  Transition to recurring revenue. It will even out your cash flow tremendously. Imagine starting every month with guaranteed revenue coming in the door instead of playing catchup every month to cover ongoing labor and facilities expenses.  Even better, your customers will prefer, and even pay a premium for, a predictable opex approach to covering the cost of IT.

Take-away #3:  Base business decisions on accurate data. As you transform from a one-time revenue model (consulting fees, break-fix support, product sales) to a recurring revenue model (managed services fees, SaaS license revenues, hosting fees), a PSA tool will ensure accurate historical data. It can provide your true cost of service delivery (labor, facilities, licenses, overhead) on a per-customer and per-month basis with the touch of a button. This data will allow you to set monthly fees at the optimum level to balance cost, margin and a competitive selling price.

Take-away #4:  Sell the value of managed services. It's not the same as selling stand-alone consulting projects, IT products or break-fix services. It's a value sell and it requires consistent, quality contact with your customers and prospects.  This is where PSA leaves off and CRM begins. James demonstrated ways to take your service histories and customer interactions and build them into an automated email campaign that builds a quality sales pipeline of prospects and builds customer satisfaction and up-sell opportunities with existing clients.  If customer case studies are the most effective way to communicate the value of your services, then measure it and do more of what works and less of what doesn't work.

We see a lot of synergy between using a tool like Tigerpaw to manage a CSP business and our own CSP blueprints for pricing and packaging cloud services as well as enabling a sales team to sell their value and drive customer acquisition.  Let us know your thoughts or questions on this subject as well. If they were not fully answered or addressed by this VPG session, we will continue the subject in a future session.

Thursday, February 14, 2013

Workgroup Collaboration Meets Project Management

In yesterday's Virtual Peer Group session, Sean Crafts, the Chief Customer Officer at  Mavenlink, discussed many applications and benefits of utilizing project management software to manage the productivity of workgroups. Mavenlink is a top-rated app in the Google marketplace and is used by companies principally in the SMB segment but also has a number of large enterprise customers such as Oakley, Aflac, Shell and Kaiser Permanente. They have over 450,000 users located in 190 countries - so the product has broad market appeal.

So why is project management such a good fit for Cloud Service Providers?  From my perspective, there are 3 big reasons.  First, SaaS solutions like Mavenlink can be integrated with other cloud services that are used to run the business - from foundational collaboration and messaging services like the Google apps suite to hosted business apps like Intuit. Second, project management can be used to amplify the productivity of teams - in the case of Mavenlink, those teams can include internal members and external members like clients and suppliers. And third, project management can provide executive oversight for ensuring business goals are met  - including hard dollar business goals like collecting invoices on time and managing project costs against operating budgets.

CSPs can add value to a project management deployment by becoming proficient in the business integration of project management as well as the application and data integration. By business integration, I mean adapting the use of the tool to the workflow of the business. If you understand how your customer can benefit from project management, and you design, deliver and deploy a cloud service that realizes those benefits, then you have earned more than just a reseller commission. You can justify up-front consulting fees and ongoing management fees for this ingredient of your cloud solutions ecosystem. Many of Mavenlink's partners implement project management internally for just this reason - to become proficient with the business, application and data integration of the tool.

Who pays for project management? For Mavenlink, the key industries involve professional services firms - marketing and design firms, legal, financial, IT and engineering and business consulting as well as education and public sector clients. Why? These are organizations with users who are typically tracking time and expenses, customer deliverables and collecting payments. Collaboration with external contractors and clients is especially important to the customer profile.

What happens when workgroup collaboration meets project management? The CSP can tie the softer benefits of workgroup productivity to the more tangible benefits of time, cost and revenue management. This can not only be a source of one-time and recurring revenue for a CSP, but also adds value to the critical role of trusted advisor  - and that often leads to longer-term relationships and more customer referrals.

Tuesday, February 5, 2013

Virtual Infrastructure: Commodity Service or Value Enhancer?

As you integrate cloud technologies into your managed IT services practice, you will most likely find yourself evaluating virtual infrastructure as a foundation technology for your portfolio. You will find it relatively easy to position the classic benefits of cloud computing to your customers - you know them - zero capital outlay, predictable operating expenses, infinite scalability, continuous availability, access from anywhere, at any time, and so on.

Virtual infrastructure is a foundation technology because new applications can be readily built on top of flexible IT resources and you can wrap your own managed and professional services around them. What customer segment would not benefit from an on-demand resource that allows them to host all of their business applications as well as their website presence, virtualize their storage systems and desktops and, at the same time, provide an offsite backup and disaster recovery capability for their entire IT environment? The value proposition is too compelling to ignore and the recurring revenue possibilities for your business are too lucrative to leave on the table.

But is virtual infrastructure a commodity service or is it a value enhancer for a Cloud Solutions Provider (CSP) business? That’s entirely up to you and how you position the technology, how you integrate it with other services, and how you price and package it as part of a managed IT solution for your customers.

Like everything else, there is a right way and a wrong way to leverage cloud technology as a service provider. Lets start with the wrong way. If you simply refer your customers to a commodity public cloud service, turn the billing relationship over to the public cloud provider, settle for the breadcrumbs of a referral commission and fail to add value as a trusted IT advisor, then you have missed a significant opportunity to grow recurring revenue and deliver added value to your customer.

Recently, we had a guest speaker from Artisan Infrastructure address our Virtual Peer Group (VPG) to talk about this issue.  Here is what they had to say about enabling CSPs to profit from their virtual infrastructure platform.  

* They are a 100% wholesale provider - they never compete for business with their channel
* They offer a cost-plus model - the CSP sets the final customer price - not Artisan
* The CSP owns the customer billing relationship - allowing the CSP to bundle services
* They have created an ecosystem of technology partners - so the CSP can integrate solutions
* They support CSPs who are new to virtual infrastructure management, or highly experienced

We think the Artisan model is the right way to leverage cloud technology. It’s a model that allows a CSP to add value, set their own prices for bundled solutions and own the total customer relationship. Just think of the opportunities available to your company, as a trusted advisor, in designing a virtual solution, managing your customer’s cloud migration, optimizing the cost, performance and user experience of their solution and implementing an appropriate security and business continuity policy for their online environment. Then after deployment, you can remotely monitor and manage this virtual environment for a monthly fee - all without the threat of competition from the infrastructure provider.  

As you consider technology building blocks for your CSP business, think about how you can add value during the design, deployment and delivery phases and look for technology partners who enable you to profit from your role as a trusted advisor. It’s the difference between acting as a reseller of commodity cloud services and an integrator of tailored cloud solutions.

Sunday, May 13, 2012

The Virtual Peer Group is Introduced to the Cloud Alliance for Google Apps

During our most recent VPG session, we heard from a guest speaker, David Politas, who is the founder of the Cloud Alliance for Google Apps and also the CEO of BetterCloud. David introduced us to the Cloud Alliance – its mission, membership and value to Google Apps Resellers. The presentation provided us with a very good understanding of this timely initiative and also got us thinking about how to navigate through the hundreds of applications available in the Google Marketplace.

David raised some great points during his presentation. One of them was to point out that the success of early Google Apps resellers was enabled by their position as “first market movers”. Now that there are more than 4,000 Google Apps Resellers world-wide with the majority of them in North America, the first market mover advantage is a thing of the past. So how can a reseller differentiate from the competition? The obvious answer is by offering a broader array of cloud services and/or providing a deeper level of integration/customization/business value than other resellers – to offer real solutions based on a combination of services as opposed to reselling and installing off-the-shelf GAPPS licenses. So selecting the right complementary cloud services will be critical to building a differentiated value proposition upon which to base your CSP business.

Todd and I have always felt that the two most critical questions to address in building a successful CSP business are (1) what hosted services should be packaged into cloud solutions for your target customer set and (2) what business model will generate the highest level of recurring revenue at the highest margin based on those services.

So the Cloud Alliance is an initiative that is addressing the first of these key questions and it represents an important step in filtering the overwhelming number of choices from the Google Marketplace on behalf of the Google Reseller community. The second question is a fundamental goal of our Cloud Solutions Provider Program.

As I think about the two key questions posed above, I can list at least 10 criteria that could and should be applied to a cloud service under consideration for your own Cloud Solutions Ecosystem. See if you agree with my 10 criteria and feel free to comment or offer some additional criteria of your own.

10 Criteria for Selecting Apps for a Cloud Solutions Ecosystem:

1. How completely is the app integrated with the Google Apps suite?

As David pointed out in his presentation, some apps in the Google marketplace are very loosely integrated while others are much more tightly integrated. Building on Google Apps as a messaging and collaboration platform is far more compelling when there is total integration (data, operational, and functional) between the Google Apps suite and a complementary app from the marketplace.

2. Does the app have the right features & functions?

Clearly you will want to evaluate a potential new service offering from the standpoint of its functionality. You want to hitch your wagon to a technology that will offer the most complete feature set in order to support a diverse set of requirements from your customers and avoid losing deals to a competitive offering that has more or better capabilities.

3. Is the solution customizable?

In order to enhance business value and to separate yourself from competitors, you are not interested in simply selling or referring off-the-shelf apps. You want to look for apps that can be customized to address the specific needs of your target customers. Is the app customizable? What technical expertise does this require? What customer problems can you solve - and what business value can you create – as a result of this customization?

4. Does the ISV and the app have brand recognition?

Perhaps this is not the most critical of the top 10 criteria, but as you establish your own brand identity in the marketplace, it can be helpful to hitch your wagon to the brand awareness of a very popular app. It can also be important to your current and future customers to view your ecosystem as a best-in-class portfolio of services containing established and recognized leaders in a variety of technologies and applications. Your ecosystem is a direct reflection of you company, representing the choices you have made on behalf of your customers to provide them with the best cloud-based IT service platform to run their business.

5. What is the cost of the solution?

The cost of the app is an important criterion because it is a direct source of revenue and margin for you and it also directly influences your customer’s buying decision. The price points for apps available in the Google market place vary significantly from virtually free to well over $100 per user per month. In the CRM space for example, is $65 to $125 per user per month while Insightly is under $10 per user per month and the first 3 users are free. And, of course, these two ISVs have their own pros and cons with regard to feature/function, brand identity, ease of use and the level of Google Apps integration.

6. What is the end-user market focus?

At the core of understanding and positioning the value of every app in the marketplace is the end user market focus. Ask yourself what problem the app is trying to solve and who typically has this problem? Is it a business or consumer focused solution? If it’s truly a business-class application, does this sound like your target customer? Make sure there is a direct match so that each new app added to your own ecosystem complements other apps and contributes to the synergy of your total cloud solutions portfolio.

7. What is the ISV’s commitment to the channel?

The Google Marketplace tends to be a superstore of apps for anyone who wants to shop there – both customers and resellers. As a result, it can be hard to distinguish between ISVs and their applications from a “wholesale” versus “retail” perspective. As a CSP, you want ISV partners who are committed to building their business via the indirect channel and not simply a source of referrals for expanding their direct business. An ISV committed to the channel will have a reseller program with training, support, sales enablement tools and help in marketing the app or generating new leads. You want a business partner, not a vendor relationship.

8.  What is the revenue sharing model?

David Politas did a nice job of explaining the ways ISVs approach the concept of revenue sharing with Google Apps Resellers: Referrals, in which resellers are informally compensated for referring clients to ISVs, Commission-based, in which the reseller is paid a commission for selling the product, but the ISV handles the billing and shares in ownership of the customer relationship, and Wholesale, in which the ISV sells the product to the reseller at a specified price and the reseller sells the product at a markup to clients while assuming responsibility most, if not all, of the customer relationship (e.g. billing, first line support, etc.). Each model has different implications for your revenue and margin potential, cost of service delivery and customer loyalty.

9. What is the revenue enablement potential?

The revenue enablement potential is the incremental revenue value of an app beyond the direct licensing business. In other words, what value added services can you wrap around the app to generate more business? As stated above, if the app is customizable, then you can charge more for tailoring the app to meet the business needs of your customer and charge a greater deployment fee up-front. If the app is customized, then you are the best choice for providing ongoing services like help desk support or cross selling other hosted services, like backup and recovery for the application database or single sign-on for enhanced application security. Look for apps that maximize the incremental revenue potential.

10. Does the technology fit your business & delivery model?

Last, but not least, be sure that you clearly understand how you will deliver and support this app as you scale your CSP business. Do you have the resources to integrate, customize and support the app to realize its full revenue potential? What will be the true cost of service delivery to your business and what level of gross margin will a typical deal generate based on service fees you generate and service costs you incur for a typical customer engagement. This is where the modeling tools in the CSP Service Pricing Blueprint will come in handy.

A Structured Approach to Building Your Ecosystem 

Clearly not every app you add to your ecosystem will require this level of analysis and due diligence, but for those apps that will become your core services, these are the criteria that will drive the best choices for establishing and expanding your own cloud solutions ecosystem. The Cloud Alliance is an important step towards using a structured approach for maximizing the business value of your service portfolio. As a group, lets try to further refine this structured approach and use it for the most appropriate apps to add to your Cloud Solutions Provider business.

Tuesday, May 8, 2012

What are the most effective lead generation programs?

In a recent meeting of our Virtual Peer Group we discussed the effectiveness of a broad spectrum of lead generation programs including:
  • Webinars & ground seminars 
  • Outbound telemarketing 
  • Event marketing (exhibits, conferences) 
  • Email marketing (news letters, promotional offers) 
  • Internet Marketing (SEO, PPC, Banner ads, etc.) 
  • Social Media Marketing 
  • Referral Programs 
We compared and contrasted the pros and cons for each type of lead gen program and talked about the value of combining them into an integrated marketing program. We also talked about the importance of basing your lead gen program on compelling content that includes your well-defined value proposition and how well it is tailored to your the business issues that are most important to your target market. 

Your value proposition must be (a) differentiated, (b) address the top problems/concerns of your target customer set, (c) articulate cloud solutions that address those problems, and (d) demonstrate the business value that you deliver to your customers. Then we talked about the importance of the “call-to-action” as a key ingredient that will convert the interest created by your compelling content into action taken by your prospects.

We concluded the session with a discussion of metrics that measure lead gen effectiveness with a focus on conversion rates and their role in setting targets for lead gen volume, their impact on pipeline activity and revenue value as well as their impact on the cost per lead and the cost of customer acquisition. There is a lead gen effectiveness measurement template in the CSP Program’s Performance Management Blueprint.

Here are some questions to consider for your own lead gen initiatives:

1. Which lead gen programs have been most effective for you?
2. What are their response rates? Qualification rates? Average cost per lead?
3. What percentage of your leads covert to your sales opportunity pipeline?
4. Do you have a well-defined value proposition that meets the above criteria? 
5. Do your lead gen programs articulate that value proposition? What is your call-to-action?

Making the Transformation to Monthly Recurring Revenue

I thought I would share an interesting topic held during one of our Virtual Peer Group sessions. We discussed the opportunities and challenges associated with making a transformation to a Monthly Recurring Revenue (MRR) business. There are significant business benefits associated with the MRR model including:

  • Higher total revenue and margin for the average customer engagement
  • Consistent revenue levels and a predictable long term revenue stream 
  • Higher valuation for your business during a future M&A event

The MRR model is also attractive to your customers and prospects as it removes the heavy up-front cost of IT deployment and replaces it with an affordable monthly operating expense that can be budgeted on a per employee basis. Market acceptance for the MRR pricing model has been well-established by the MSP community and is the perfect approach for CSPs as they introduce managed cloud services as an alternative to premise-based IT services.

We then compared the revenue value of a typical 25 employee deal and found that just during the first year of a managed services contract, a recurring revenue deal generated 2 to 4 times the revenue value when compared to a project based deal.

So having established the many benefits of recurring revenue, we turned our attention to some strategies for how to move from $50/user/year to $50/user/month. In general terms, the strategy is to wrap chargeable services around Google Apps, then add more cloud services using the same service wrap-around strategy, then layer premium offerings such as virtual CIO services on top of your service portfolio and finally, use these enhanced solutions, and a highly efficient sales process, to accelerate customer acquisition.

To go a bit deeper, we looked at some of the tools found in the Go-To-Market blueprint, including examples of chargeable one-time and recurring services. We also looked at a comprehensive 3-year revenue model that projects total accumulated revenue and margin against the cost of service delivery and cost of customer acquisition. We concluded the session with some ideas for how to survive the first year of the recurring revenue transformation where maintaining positive cash flow to fund the business during the early phase of the revenue ramp can be a challenge.

Here are some questions we considered as the group:

1. Are you considering making this transformation?
2. Have you already begun this transition?
3. What are your biggest concerns?
4. Where do you need the most help?
5. How can the VPG community or MSPexcellence provide assistance?

If you are not a VPG member and would like to get a sense for one of our VPG meetings, we have posted a recording of this session here.

Essential Tools for the CSP Sales Process

Our second VPG session was devoted to a discussion of the sales enablement tools included with the Sales Process Blueprint. The Sales Process Blueprint is the third blueprint in a four-part lifecycle of Cloud Service Provider Blueprints provided by the CSP program and it guides the CSP through managing an efficient, scalable and repeatable solutions sales process.

During our session, we talked about the ideal structure for the solutions sales process breaking down the key objectives for a solutions sales rep to accomplish before holding the first appointment, then what to focus on during the first and/or second appointment and finally how to close the deal during the second and/or third appointment.

Prior to the First Appointment:
  • Preliminary qualification (use a standard lead qualification process) 
  • Pain level, solution fit, business value, decision process & timeframe 
  • Sales Tools:   Sales Guide, Quick Reference, Lead Qualification Scorecard 
During the First or Second Appointment
  • Establish your value proposition and build trust 
  • Fill in the gaps from the preliminary qualification process
  • Begin the discovery process & needs analysis tied to business benefits
  • Identify decision makers and understand the approval process 
  • Sales Tools:  Sales Presentation, Lead Qualif. Scorecard, Quick Reference 
During the Second or Third Appointment
  • Present your quotation, the cloud solutions their business benefits 
  • Prepare/deliver ROI analysis if appropriate 
  • Schedule a proof of concept if necessary and only with success criteria 
  • Identify all open issues, finalize pricing & contract terms, close the deal 
  • Sales Tools:  Quotation Builder, ROI Calculator 

After this overview of the sales process, we had a discussion with some VPG members about the importance of qualifying prospects, gearing your discovery questions to ferret out customer needs based on your cloud solutions (e.g., understanding the risk of accidental data loss assuming that you can address this concern with a cloud backup service) and defining the business value your solutions will deliver (e.g., save money, make money, reduce risk, improve productivity, etc.).

We concluded the session with a brief introduction to the sales tools contained in the Sales Process Blueprint including a standard cloud solutions sales presentation, a quick reference guide, a lead qualification scorecard, a quotation builder and an ROI calculator. The group was encourage to review the tools and ask us for help if you have any questions on how and when to use them or suggestions for how to improve them.

Here are some discussion topics taken up by the group:

1. Do you have a standard lead qualification process?
2. What do you think are the most important discovery questions to ask?
3. Where does your sales process encounter the most resistance?
4. What are the most valuable sales tools that you have or would like to see?
5. Do conduct formal sales training for your reps and sales agents?