The Trouble with Managed Services: Making the Move to a New Business Model

Cloud, cloud, cloud. That’s all vendors talk about these days. It’s just
about all Microsoft CEO Steve Ballmer talked
about during his keynote address at the Microsoft Worldwide Partner Conference
last month (or as he would say it: "Cloud, cloud, cloud, blah blah blah"),
and it’s clear that managed services, cloud and software as a service are at
top of mind for vendors, at least, and perhaps also for some solution providers
who are considering how it may be possible to make the transition.

But for anyone who has ever contemplated moving from one business model to another,
it seems there’s some kind of quantum leap involved. The path from one to the
other doesn’t make much sense at all. And the stumbling blocks to that move
were acknowledged by IT solution providers this week participating in a panel
about just that—making the leap to managed services—presented during the
CompTIA conference in San Antonio, Texas.

The Eight Habits of Highly Successful MSPs

For instance, how do you get an existing client who is signed on for just a few
hours a month to start paying thousands of dollars a month? Can you?

The answer seems to be yes and no. Alex Rogers, CEO
of ARRC Technologies, says you need to ask questions and find out where the
issues are. Just because they don’t tell you those issues exist doesn’t mean
that users aren’t spending 20 minutes every morning waiting for their PCs to
boot up.

But paying that much more is leaving customers and solution providers in a quandary,
says Scott Barlow, vice president of sales and product management at Reflexion
Networks. Financials are the biggest challenge, he says, when comparing the
large chunk of cash that comes in today from project work versus the smaller
amount that comes in monthly from managed services contracts.

And it’s a different world for salespeople, too, acknowledges Jeannine Edwards,
director of ConnectWise’s Community. She told the panel that only one of three
salespeople will make the transition from traditional IT solution provider
business to managed services.

MJ Shoer, president of Jenaly, says his company spent about a year dithering
about which MSP platform solution to choose and fussing over the price,
initially opting for the least expensive. However, when he reverse-engineered
the problem—thinking about what he wanted to offer customers and then looked at
the PSA and tools that would allow him to do
that—it all got simpler. He was spending more money than he should have been
because his company was doing extra work to fill in for the least expensive
tools he used to start with.

Beyond the tool choices, the big thing that made a difference to Jenaly’s
managed services practice was simply making a conviction to following through.

"You’ve got to have that strong conviction," he says. "When you
are marketing to new clients, your marketing has to convey that strong
conviction."

And new clients may be the way to go when you are starting with managed
services, rather than trying to transition your existing clients who are happy
with the status quo. Edward Stringfellow, CEO
and president of Stringfellow Technology Group, a Nashville-based MSP, says it
doesn’t make sense to try to transition current break/fix clients to the
managed services model.

"A lot of folks are holding onto hourly clients thinking they are going to
convert them," he says. "You won’t. You are already giving them what
they want. A guy who has been spending $20,000 a year with me is not going to
turn around now and spend $50,000."

That’s why Stringfellow started up his company from scratch in 2004 as an MSP,
only offering those services to customers. And another big issue that many VARs
don’t discuss is whether it makes sense to convert smaller existing clients,
Stringfellow told Channel Insider. For clients with fewer than 30 users, it’s
very difficult to justify a managed services contract because the revenue is
not high enough to justify a single catastrophic server failure. Those
small VARs looking to transition those smaller customers will continue to run
into trouble.

These early pioneers in managed services certainly don’t have every answer for
a VAR looking to make the leap. But they
demonstrate that the change is absolutely viable for a VAR
willing to do the hard work and make the conviction to explore managed
services.

Jenaly’s Shoer recommends, in researching the tools: "If cost and time and
people were no issue, what would I do? When I have that answer, then I would
back into making it happen."