Thursday, January 27, 2011

The interconnects (voice VAR) path to recurring revenue

I’ve spent the last 15 years in the managed services business (yes even before MSP was an acronym) on the data side of managed services as well as the voice/VoIP side. And before that I was in the voice world as a PBX tech at ROLM then sold Fujitsu PBXs. One thing I’ve been very, very curious about is “Why so few interconnects transition to recurring revenue managed services?” A vast percentage of all interconnects’  businesses have been suffering greatly for quite a long time now and they all see managed services taking over but why the resistance?   

First, let’s get this out of the way, what is the definition of managed services (ie what does a MSP do)? “Remotely provide technology and services to customers, on a recurring revenue basis, via long term agreements.”
Ok so what have I seen as the challenges?
1.       Just like data VARs, the leadership/owner at interconnects have a long technology heritage. Most of the interconnect owners have been in the business since the early TDM days. They find it extremely daunting to transition their business model from a product/technology and break/fix model to a recurring revenue managed services model.
2.       Many interconnects have only entered the data world recently (and some have yet to). A vast percentage of managed services are data focused including the tools used to deliver these services. Although it is possible to offer voice/VoIP only managed services the interconnect must also have data expertise to survive in the long term.
3.       We all like instant gratification. Unfortunately I see too many interconnects attempt to become recurring revenue MSPs but give up too quickly. Making this transition is not for the faint of heart and requires a marathon runner, not a sprinter.
4.       Time is our enemy. And in the case of the interconnect it’s potentially life threatening. To this day I still see interconnects (and data VARs as well) “hope” the old way of business will come back, it's not. If the interconnect doesn’t make this transition they will eventually go out of business, it’s only a matter of time. The interconnect that is making this transition now, great!, but do it right competition is only increasing.

Here are the 5 steps. I could write a book on these 5 steps (oh, actually I did), here are the foot notes. And no, you don’t need your MBA from Harvard to do these.
1.       Create  formal strategic plan
- involve everyone in your organization as everyone will be affected
- create a SWOT analysis
- define the type of MSP you will be best at, define target markets you will best serve and develop your inward and outward facing value proposition
2.       Create a profitable business model
- create a business value based pricing/packaging schedule
- create a 12 month sales model, bookings and revenue, conservative and upside
- create a 12 month cost model, conservative and upside
3.       Create an effective marketing formula
- business value focused compelling content and programs
- low cost lead gen programs focused on a quantity of quality
- a lead qualification process focused chasing real leads 
4.       Create a Predictable Sales Process
- professional looking business value focused sales tools/presentations etc
- well defined and repeatable sales process and simple pipeline mgt system/metrics
- sales people and activities mgt metrics and processes
5.       Continuous Success Measurement
- simple marketing metrics-that-matter you analyze frequently to measure success
- simple sales metrics-that-matter you analyze frequently to measure success
- simple business-level metrics-that-matter you analyze frequently to measure success

I hope this helps.
Todd Hussey
Partner and Co-Founder

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