Four out of five sales staff at VARs pursuing an MSP model will fall away during the transition because they are "too addicted to the crack cocaine of short-term sales cycles", delegates at the CRN Channel Conference were warned by its keynote speaker.
Paul Bromelow, group commercial director at IBM partner APSU, admitted that his firm had encountered significant financial and cultural upheaval during its transition to MSP a few years back.
"We were very fortunate that we were an MSP that bought a VAR, rather than being a VAR that was trying to transition. But in smashing those two companies together, we came across some interesting problems," he told delegates.
Bromelow was one of several speakers at the event to open up about the missteps his firm had made and the challenges it had encountered along that journey. Although the destination might mean higher margins and increased customer stickiness, the path to get there is fraught with danger, they warned.
Ditching the ‘dead wood'
Bromelow drew some nods from the audience as he warned about the challenges resellers face in retraining sales staff to sell services, asserting that 80 per cent will "fall away".
"We found that 80 per cent of traditional VAR salespeople don't have the stamina to withstand the long-term sales cycle that is associated with a complex managed services sale," he said.
"It's a C-suite conversation and [salespeople] need to have the gravitas to be able to have those conversations with clients."
When asked which attributes he looked for in MSP sales reps, Bromelow said that they should have a track record of engaging with the C-suite.
"They understand the language. The language is a different language; it's more about the business," he said.
"Don't be afraid to make some difficult decisions. It was very clear very early on who was going to make it and who was not. The people who aren't are dead weight - jettison them. It's difficult, but you need to do it."
Dominic Monkhouse, an industry veteran who has held top jobs at the likes of Rackspace, Peer 1 Hosting, IT Lab and - most recently - iomart, advised MSPs to hire sales staff who are better than their top performer.
"One of the biggest mistakes I've made in the past is I've hired salespeople who are too junior," said Monkhouse.
"If you want to go up the food chain and sell higher-value solutions to bigger customers, you need a different approach. At Rackspace, I waited too long before I hired senior salespeople and at Peer 1 we go there much quicker. Hiring people at £60k, £70k, £80k is what you need to do if you are going to sell bigger solutions to bigger people."
Game of Thrones
Politics and understanding the power games within clients is also "incredibly important" in managed services sales, warned Bromelow, who likened the dynamics to the popular HBO series Game of Thrones.
"It's a very sensitive space to be engaged in, because as well as talking to the C-suite executives you also have to talk to the people who are currently delivering the services in the IT shop, and there's a strong possibility that some people are going to lose their jobs," he said.
"It's a very delicate balancing act, but when you get it right it can really be very profitable, and also productive for the client as they move away from those big capital investments and can focus their capital investments on their core business."
The ‘cashflow cliff'
VARs pursuing an MSP model will also have to negotiate a "cashflow cliff" as they transition away from upfront, transactional deals, Bromelow warned. He urged those following in APSU's footsteps to plan ahead and not drop their traditional business too quickly.
"As an MSP, your margin is going to be delivered over five years," he said. "Do you have the cash in your business to survive during this difficult period? And when you've got salespeople who can't deliver against that managed services growth target because they're the wrong guys, it becomes a real problem; where is your cash? We utilise our VAR business to deliver cashflow and over the last 12 months we've put so much effort on MSP that we've let our transactional business fall away a bit and that has given us a bit of a cashflow squeeze.
"You can't just switch it off. You can transition to MSP too quickly. Plan ahead.
Look at the next 12 to 18 months and see where the cashflow squeezes are likely to be as you move to managed services."
That advice was echoed during one of the panel discussions when Ian Lockwood, commercial director at Taylor Made Computer Solutions, opened up on the pain points his firm encountered during its transition from reseller to MSP.
"Sales is an issue," he said. "It's a different sales process and commission structure, and the cashflow that falls out of that can be challenging. If you are privately funded that is a massive challenge so [don't] go into it all guns blazing. My recommendation is that you stage that approach and be very careful about what to do to still bring cash into the business."
Beware bespoke pricing
Bromelow admitted that APSU had also made some mistakes around pricing, warning that offering bespoke, tailored solutions to clients in an MSP world is "the way of the devil".
"Don't do it," he said. "We've got a couple of very large bespoke engagements and it's just a world of pain. Avoid it where you can. You need to make sure you build in a lot of margin if you work in this space. If you can rate-card it, and get right away from bespoke, you're in heaven - this is where it becomes totally repeatable and standardised."
Also offering tips on pricing at the event was Carl Henriksen, founder of MSP OryxAlign.
"It has to be simple to understand, and that's for your sales team, as well as your clients. And it has to deliver a healthy margin," he said.
Henriksen also urged MSPs not to under-sell themselves, arguing that keeping end users' systems up and running at a time when they are becoming increasingly reliant on technology should be seen as a premium service.
"Business should be willing to pay the price tag for an MSP offering. I do see MSP pricing increasing as time goes on," he added.
Bromelow also advised budding MSPs to specialise and forge partnerships with other MSPs in areas outside their niche.
"We partner with other MSPs that focus on the Wintel space and which have no capabilities with IBM proprietary," he said.
"We have collaboration agreements with them to deliver joint services as a conglomerate to customers, and that works really successfully. We have agreements where we sign upfront and do lead passing, because you can't do everything - that's the way of the devil."
Monkhouse echoed this by advising MSPs to get laser focused.
"The more specific you can be, the better," he said. "One of the marketing agencies I've worked with in the past started off by saying ‘we're a marketing agency', and the phone didn't ring. Then they said they ‘we're a marketing agency in Reading', and the phone didn't ring. It was only when they said ‘we're an inbound marketing agency for tech firms in Reading, that does amazing work on HubSpot', that people who had that problem rang them up. It's about getting as specific as you can."
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