Tying the Knot

Live together long enough with your girlfriend or boyfriend, and sooner or later the topic of marriage will come up.

Relationships evolve. And the cornerstone of that evolution is security. Whatever the relationship, personal or business, certainty is paramount.

Channel companies understand relationship as well as anyone. Being smack-dab in the middle of a wide and deep network that includes manufacturers, software developers, distributors and end-user customers forces solution providers to be relationship experts.

Relationships for successful channel veterans is nothing short of a mindset. It’s quite common to hear the head of a channel company refer to another IT company not by its name but by the name of the executive he knows best at the company.

Because, you see, once you get past the gizmos, the zeros and the ones, the cables and the silicon, this really is a people business.

So, what’s the point? Bear with me, impatient reader, I’m getting to it.

Channel companies are so dependent on relationship that they are potentially putting themselves at risk as a result. That’s because in too many cases those relationships are, from a legal perspective, informal.

See, the time has come to take that important step. Yes, it’s time to walk down the aisle, or to the JP’s office as it were, and declare, “I do.”

And to do it right as a provider of managed services, that “I do” has to involve a lawyer. I know what you’re thinking, mischievous reader, but attorneys are necessary and quite helpful, so let’s save the lawyer jokes for later.

Look, it’s a serious matter. As a managed services provider, a channel company is staking its business on a model that requires a tighter relationship than ever with the client. Providers are basing their entire value proposition on the recurring revenue as defined by an agreement with the customer. But, according to a legal expert in software matters, fewer than 50 percent of those agreements between client and provider have been prepared or reviewed by an attorney.

Often, says attorney Robert Scott, of Scott & Scott in Dallas, providers are using agreements drawn up by office managers. Office managers are positively critical to a well-run business, but most aren’t legal experts. At least, that’s been my experience.

Scott says providers could get the necessary legal counsel for $3,500 to $7,000, sums that he points out are a drop in the bucket compared with the potential risks involved.

A dispute with a client without a tight contract to protect the provider could well result in someone going out of business. And that someone could well be the provider.

Managed services are effecting a deep transformation in the IT channel. But as often is the case with profound changes, risks abound. So managed service providers must do everything they can to protect themselves as they take their client relationships to the next level.

A good start is avoiding the temptation to promise more than you can deliver. If the client requires a skill you don’t have, it’s best to get it through a partner, and make sure the partnership contract is as tight as the one with the client.

Channel companies that have been too dependent on product and break/fix work for their revenue have a tremendous opportunity for steady, predictable revenue through managed services. But if they are going to walk down the aisle, they must make sure they know what they are getting into.