Friday, January 27, 2012

Are you ready for a channels-based cloud business?

5 key questions to consider before you leap into building a channel-based Go-To-Market program for your cloud solutions

1.  Are you ready to commit to an indirect channel?

Creating, managing and making a channels program successful is not a part-time job, nor is it for the faint of heart. Either you are committed or you’re not. It’s also not a short term experience delivering short term results. However, the end results of a properly executed channel program can be a scalable, high volume, market share expanding sales machine that can reduce your cost of customer acquisition and dramatically increase the value of your company. Far too many times we’ve seen tech companies saying “Yes, of course we are committed to the channel” only to find out that when the deal flow doesn’t grow as fast as they would like and cash gets tight, guess what happens? They start taking deals from their trusted partners. And the next thing you know they are blacklisted by the channel – the kiss of death.  The first commandment of indirect sales is “Thou shalt not compete with one’s own channel”.  Are you ready to fully commit to the channel?

Rate yourself on a scale from 1-5 (5 being highest)    ________

2.  Do you have a compelling channel-directed value proposition?

What does this mean? Do you have a channels program that includes a saleable and viable end user solution, with proven sales success and with the tools required to help the partner replicate your success?  Do you have a revenue sharing plan and profitability model that shows a potential partner how they can make a business out of your cloud solution? Approach this like you are providing them with a franchise opportunity.  Really adopt the mindset that you are the franchisor and your partner is the franchisee.  Provide them a repeatable success formula that is proven to be effective.  Do you have a compelling channel-friendly value proposition?

Rate yourself on a scale from 1-5 (5 being highest)    ________

3.  Do you have a compelling end-user value proposition?

Is your end-user value proposition based on a deep dive technology sell or is it based on creating business value?  Are you the only one in your company who can really close sales?  Or have you been able to craft and capture your message in a way that any intelligent sales person can deliver?  If your value proposition requires a rocket scientist to deliver, then get ready for a long and costly sales process in the channel. Instead, make sure that you have a nicely defined, well positioned, ROI-driven end-user value proposition that a channel partner can use to find prospects, engage in a sales process and close deals at a reasonable rate. Do you have a compelling end-user value proposition?

Rate yourself on a scale from 1-5 (5 being highest)    ________

4.  Are you ready, willing and able to make the channel successful?

Do you have the proper support system in place to enable a successful program?  A support system includes sales and marketing tools, a sales management and review process and resources to provide assistance before, during and after the sale.  A channel support system is not something you create on the fly.  It requires careful preparation before you ever launch the program. All too often we see technology companies put enormous development effort into their technology solutions and their direct sales model but when it comes time to launch a channel program, they fail.  They fail because they are expecting the channel to be self-sufficient. Enabling an indirect channel is no different than a franchisor enabling their franchisees to succeed. Are you ready, willing and able to make the channel successful?

Rate yourself on a scale from 1-5 (5 being highest)    ________

5.  Do you have enough patience for a channel program?

Do you truly understand the significant value a well-executed channel program can bring to your company and the ability for this program to significantly increase the cash valuation of your business? If so, then have patience, and lots of it. It will take much longer than you expect for your channel program to reach its full potential. You must be prepared for all of the hard work and time required to execute a channel program with “excellence”.  The first year will be a major investment of time and energy with few tangible results in the form of revenue from productive partners. The second year will bring some results, but certainly not the big payoff you were expecting. However, by the third year, you can find yourself sitting on a hugely profitable business that has far more scalability than a direct-only sales model.   Do you have enough patience for a channel program?

Rate yourself on a scale from 1-5 (5 being highest)    ________

What is your total score? ________
In which of the 5 areas are you strongest?
In which of the 5 areas are you weakest and need help?

Wednesday, January 25, 2012

How to Add Cloud Services to Your MSP Business

In our last post, we talked about how the cloud is changing the MSP landscape and how the Cloud Solutions Provider (CSP) has emerged as a new and improved version of todays Managed Services Provider.  We think, over time, this evolution is inevitable for all MSP’s.  While it may take many months or even years to unfold, ultimately the CSP will dominate the service provider landscape just as the cloud will dominate the IT landscape. If that’s true, then the question becomes:  How will the MSP add cloud services to their current business model?
It’s a complicated question and like most complex problems, there are many ways to solve it. Lets break it down in two ways – let’s consider the major categories of hosted cloud services available along with the different deployment models for bringing them to market. For service categories, we see six major trends driving companies from the SMB to the large enterprise toward the cloud. They are:  pay-as-you-go virtual infrastructure (IaaS), hosted applications (SaaS), cloud-based collaboration services (Google apps and Office 365), mobility solutions (for tablets, smart phones or netbooks), availability and security services (from virus protection to data backup and recovery) and last, but not least, a support model that manages the end-user experience.  These six service categories are represented in the illustration below:
Now let’s look at the deployment options.  If you are an MSP delivering managed services for premise-based devices and their users, you basically have three approaches available for evolving your business into a CSP model.  They are all variations on the “make versus buy” theme.  One approach is to build your own data center and operate a facility that offers virtual IT infrastructure and provides hosted services in one or all of the six categories described above. This is the most expensive route to take and the longest path to profitability. However, it does have the advantage that you control all costs and eliminate the middleman that goes along with reselling a white-labeled hosted service.  That being said, in the age where low cost services are readily available from major players like Amazon, Rackspace, Microsoft, Google and others, this path is rarely taken except by large, established and well-financed MSPs.  
The second approach for adding cloud services to an MSP business is to assemble your cloud solutions by selecting best-in-class services hosted by 3rd party providers and wrapping your own added value services around then. This model is sometimes described by using words like “broker”, “aggregator” or “integrator” and there are different levels of value the MSP can provide when performing one of these roles.  We like the simple concept that 3rd party hosted services are like the engine of a car while your managed services provide the frame and body of the vehicle combined with your help in driving that vehicle in the right direction.  In other words, you turn cloud services and technologies into cloud solutions that create customer value. 
The third approach is to outsource the entire cloud services delivery and support function to an existing Cloud Solutions Provider and become their customer acquisition engine. This approach may make sense for companies that are not full-service MSPs, like VARs and Interconnects for example. If you are new to recurring revenue, have few resources available to manage service delivery and support and want an instant cloud solution to offer, then consider reselling an existing full service offering from an established provider.
We think many MSPs will opt for the second approach – assembling a solution based on 3rd party hosted services and wrapping managed services around them. Like any strategic initiative this evolution will take some thought and preparation to get it right. In fact, we recommend building an ecosystem of partners who offer services that are carefully selected based on well-defined criteria for creating high value solutions your target customers will buy. Then you can price and package your integrated solutions based on customer value and not as a commodity service. We have been doing a fair amount of project work for clients in this area and will be sharing some insights on how to do this in future blog posts. Stay tuned.
Next:  How to build your own cloud solutions ecosystem 

Wednesday, January 18, 2012

How the Cloud is Changing the MSP Landscape

According to market research firm IDC, worldwide revenue from public IT cloud services exceeded $16 billion in 2009 and is forecast to reach $55.5 billion in 2014, representing a compound annual growth rate of 27.4%. Industry watchers and major players are predicting the next wave of cloud adoption will take place in the SMB segment, the primary market for managed service providers. At MSPexcellence, our focus is on helping MSPs grow a recurring revenue business with efficient sales and marketing strategies and, from our vantage point, we see the cloud changing the MSP landscape in a big way.
We’ve seen it before . . .10 to 15 years ago IT services in mid-sized companies of 50 to 500 employees were provided by internal systems supported by a small and over-worked IT staff that was, at best, reactive to the needs of the business. These companies purchased their data systems from VARs, their phone systems from interconnects and they augmented their internal IT staff with break-fix support and professional services for maintaining their hardware and software. It was a heavy capital investment for systems and a heavy operating expense for labor. Let’s call this phase “IT version 1.0”.
Then an evolution happened called managed services.  IT service delivery became far more efficient (and less expensive) when outsourced to an MSP. The MSP was able to achieve greater efficiency with the help of a disruptive technology called the remote monitoring and management (RMM) platform and it allowed them to spread their superior expertise across a very large community of companies and end-users.  The MSP model took hold in the industry because it was a win-win for customers (big OPEX savings) and service providers (long-term recurring revenue). Let’s call this phase “IT version 2.0”.

And now there is an even more revolutionary evolution taking hold . . . the impact of the cloud on the MSP landscape.  Just like RMM, the cloud is a disruptive technology ushering in a new evolutionary phase of IT service delivery, only this time the change will be even more profound. Let’s call this phase “IT version 3.0”.  This phase represents the era of cloud services and the dominance of a new kind of IT service provider - the Cloud Solutions Provider (CSP).  

The CSP will deliver integrated cloud services and managed services, a best of both worlds “solutions” approach to IT.  Cloud services will dramatically reduce capital expenses for cash conscious mid-sized businesses, a huge advantage over premise-based IT services. Additionally, as premise-based systems become centralized and virtualized, the support burden will be further reduced and the concept of the truck roll will effectively disappear - all leading to even lower operating expenses. With this new and powerful value proposition, the CSP will be able to attract new business and displace traditional MSP competitors.
However, there is still one problem with this shift in the landscape. How does the CSP make money?  That’s the key question for 2012 and you can bet every MSP is thinking this through very carefully. Virtual data centers are prohibitively expensive to build and operate and reselling commodity cloud services seems to offer little value while diminishing the role of the MSP. We have been thinking about this question too.  In fact, we have been doing more than just thinking about it. We've been working with MSPs to help them develop and execute a CSP business plan. This is not a simple process and there are a lot of moving parts, but we can tell you this:  the CSP model will survive and thrive in the era of the cloud.
However, this evolution will require the MSP to think differently about their business by blending their in-house managed services with out-sourced hosted cloud services.  It will require them to think in terms of integrated customer solutions and how they can deliver the greatest customer value with a blend of cloud and premise technologies. It will redefine their role as a trusted IT advisor to include cloud migration and integration expertise. And it will require business planning tools, where pricing, profitability targets and cost of service elements can be plugged into a model and applied to customer scenarios – scenarios that represent a repeatable sales formula for predictable revenue and margin results.  We will be blogging about all of these topics in the days and weeks ahead so check back often; as always, we welcome your feedback.
NEXT:  How to Add Cloud Services to your MSP business