NetEnrich Company Blog - ROC Your IT Operations

In a prior life, I wrote a blog for MSPmentor that said everything I needed to know about life and sales I learned in Little League – not the first time around as a young player, but the second time around as a Coach and a dad. 

Oops - he did it again! Justin Crotty has been named one of the IT industry’s top SMB Influencers by SMB Nation. At 6’7”, Justin’s an easy executive to spot. But what sets him apart from most isn’t just his height. It’s his accessibility, accountability and advocacy for the MSP.  And let’s not forget the thought leadership and honest commentary Justin’s become renowned for around hot topics such as where the industry is headed, the impact of cloud on the MSP business model and what’s simply over-hyped or under-valued.

It’s 5:30 somewhere so let’s raise a virtual glass and cheer NetEnrich’s SVP and GM Justin Crotty for once again being named to CRN’s annual Channel Chiefs list.  This is the third year in a row Crotty has been recognized by CRN as one the IT channel’s most influential leaders.  Last year he was inducted as one of the MSP hall of famers in the inaugural “Lockedin the NOC” (Network Operations Center) list by MSPmentor for his founding contributions to the MSP industry. And in 2011, Crotty was named one of the industry’s top Channel Influencers, along with NetEnrich CEO Raju Chekuri, by Channelnomics. 

It’s been about three months since NetEnrich announced its intent to donate 5% of new revenue generated by Ingram Micro VTN members to support the staggering rebuilding needs of residents in Joplin, MO., the site of a rare Class 5 tornado that left an enormous scar across that city on May 22, 2011. The unprecedented storm killed 162 people and caused catastrophic devastation, including millions in damage and thousands of homes destroyed. Our goal when we announced this incentive program was — and remains — raising enough money to offset the cost of  building a Habitat for Humanity home in Joplin.

We often divide new technology into two categories: immature and mature. Immature, of course, is when something is first developing. Over time, technology improves and becomes mature, the point by which it’s considered robust and generally accepted.

As an industry, we often prejudice immature technology because of its lack of features, performance issues or difficulty in use. We pine for mature technologies, those that have all the kinks worked out and enough general market acceptability to make them relatively easy to sell and support.

I’m going to argue that technology maturation isn’t a good thing. In fact, it may even work against a managed service business.

Recently, Gartner CEO Gene Hall said, “Mature is a polite code word for increasingly obsolete."

I agree. Immaturity of technology is part of the reason the channel is able to make money. The old saying, “Where there’s mystery, there’s margin” is a reflection of immaturity – the technology is so new and imperfect that end users need outside help to make it work properly.

What’s valuable to the channel is a balance of moderately mature technology and market adoption. It’s at this critical inflection point that solution providers have the best opportunity to make money on goods and services, as there’s enough market awareness to drive sales and enough mystery remaining in the technology to necessitate outside help.

These principles apply to the managed services market. Some would argue that managed services are the continuation of mature technology adoption by other means. When technology reaches a certain maturation point, end users will find it simple enough but burdensome to operate on their own. They will then turn to a managed service provider to assume administration.

MSPs are able to charge premium prices for such services so long as the market for those services remains relatively immature. Once the market matures – or reaches saturation – MSPs will lose the ability to charge premium prices, and they’ll see margins erode.

So, how do MSPs maintain high margins amid maturing technologies? Two ways. First, continue to adopt and support technologies that end users can’t implement or manage on their own. Second, lower your delivery costs by remotely managing and administering the stable services, such as core infrastructure management, that are considered more mature by most small-to-mid-market enterprise standards.

NetEnrich can help on both fronts. You will always need to offer foundational managed services, such as network monitoring and management. You can maintain your profitability by remotely managing these services and using partners such as NetEnrich on a fixed-fee basis, to free up your staff and financial resources for investments in more complex engagements, such as managing virtualized environments, Unified Communications or cloud, which create a higher value to your customers and higher margin returns for your business. Better, NetEnrich can help make easier that adoption and management of these next-generation services, ensuring continued profitability.

Of course, all of this is code for growth and expansion, rather than maintaining the status quo. Too often, vendors, solution providers and even end users try to wring value out of increasingly obsolete technologies and ignore new opportunities in emerging technologies. We think what’s needed is a balance between the two extremes. 

Keep an eye out for next quarter’s webcast series, beginning in January – we’ll explore the best ways to grow your managed services portfolio without breaking the bank.  Of course, expect Justin Crotty to have fun with a few of our topics. Why not? This is a great business that we’re all in, and it’s fun!

On behalf of the entire NetEnrich team, we want to wish you a very happy holiday season.  May your days be filled with peace, joy and happiness throughout the New Year!

Cheers,

Raju Chekuri
President and CEO, NetEnrich, Inc.

Famed Irish writer George Bernard Shaw said, “The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.”

He was talking about risk, innovation and differentiation. When you adapt to the world around you, you essentially become a part of the landscape. When you adapt the world to yourself – and mold the world to your liking – you become unique.

The next generation of managed service providers won’t become part of the landscape. They will change the world around them through vision, innovation and fortitude.

And that’s part of the problem we’re combating in managed services today: too many providers becoming part of the landscape. We, as an industry, have done a masterful job boiling managed services down to kits that practically anyone can open up and start selling. At this pace, managed services will be no better than Amway or Avon. Surprisingly, no one has tried pulling a Mary Kay marketing scheme to give every MSP a pink Cadillac.

What does it mean to be successful by changing the landscape to your world vision? Look no further than the icons of the industry. Larry Ellison. Steve Jobs. Bill Gates. Thomas Watson. Mark Zuckerberg. What these people did was not play by the rules created by the rest of the industry, but rather rewrite the rules to meet their vision. And here’s the thing about them: Each of them was considered unreasonable when they started out.

We can talk about technology and business models and marketing schemes and vendor alliances built on APIs and channel programs, and it’s all meaningless when managed services – as a market segment – is built on industry scale and not individual scale. What’s the difference? Individual scale is when a business is built to grow by expanding resources to meet customer needs and market demands; industry scale is when the industry creates legions of providers for the purpose of pushing more of their product and not necessarily the sales and profitability of the individual provider.   Understand the difference?

What we need are more unreasonable people in managed services. We need thought-leaders who aren’t willing to accept the latest 5-step guide to becoming a MSP, or are willing to sell the same set of services as the other 5,000 guys in the room at some conference in Las Vegas, Chicago or Orlando. We need people who will look at the current technologies and imagine new applications that create value.

The managed services market needs to heed Shaw’s advice. The value to changing the world around you means you won’t eventually become just another tree in the forest.

Justin Crotty
SVP, GM NetEnrich, Inc.

Throughout our Q4 BIZ DEV webinar series, we’ve focused on the increased need for value-based pricing as one of the much-needed steps MSPs should take to avoid artificial commoditization — the self-imposed lowering of prices and profits. We’ve heard from industry expert Larry Walsh and others about the idea of selling managed services based on value rather than lowering prices in response to misperceived competitive pressure.

The missing element is often the lack of truly understanding the market value your expertise holds and how to position it. So, how do MSPs uncover and align the value of their specialized expertise when it comes to price?

You can start by joining us for the Dec. 7 BIZ DEV webinar with Walsh, hosted by Ingram Micro. Walsh will reveal his new research on managed services pricing, plus share advice on how to overcome this troubling pricing trend in the managed services market. Register now!

However, value-based pricing is only one factor in building and sustaining a successful – and profitable – managed services practice. Understanding, articulating and selling your value is the other half of the equation. Do you know how to empower your sales team so they can share your value in a compelling way? We can help you with that, too. At noon ET/9 a.m. PT, on Dec. 13, NetEnrich VP and GM Justin Crotty will sit down with MSP sales expert Frank Albi to discuss value-based selling and how you can differentiate yourself from your competition through effective pricing strategies and sales tactics.  Click here to reserve your spot at this webinar.

One of the more appealing characteristics of the managed services business model is recurring, predictable revenue and profitability. Since services are sold on a subscription – monthly, quarterly, annually – MSPs know precisely the minimum they will bill and collect in any given period.

A critical factor in this equation is not just having customers, but retaining them and keeping them in good standing.

MSPs often complain about the expense of building a managed services practice – infrastructure development, software acquisition, marketing, sales, support – is front-loaded. Over time, the MSP will recoup that cost as more and more accounts and devices under management are added. At a certain point, an MSP will reach an inflection point after which all accounts become pure profit.

With a fixed number of accounts on the books, MSPs can accurately forecast to the penny the minimum amount of revenue they will bill in any given month. The qualifier “minimum” is there because there’s always the possibility that more accounts and devices will be added to the ledger, increasing the monthly gross.

This basic mathematical principle is what makes customer retention so important in managed services. Without a stable account base, an MSP does not have predictability in revenue or profitability. If customers keep falling out of your program, the profitability of the business actually decreases precipitously as more energy and effort must be put into recruiting and closing replacement accounts.

It’s a well known truth in sales that it’s far less expensive to retain a customer than it is to sign a new account. An existing account has experience with your services and the benefits that come with them. They know you as a trusted advisor to their services needs, and they’re far more apt to consider a product or services recommendation you make than one brought to them by a cold call.

The need to retain customers makes customer satisfaction and quality of service paramount in the MSP model. Instability alone will make revenue inconsistent, and that will make for irregular cash-flow and increased difficulty in managing expenses. And this is to say nothing of the irregularity in profitability, which will hamper the ability to invest in new resources and capabilities.

A stable customer base that continues to consume a steady level of services creates a revenue – and profit – foundation that enables MSPs to not just reap profits, but expand markets, acquire customers and increase capabilities. As every successful MSP knows,customer retention is synonymous with recurring revenue.

Justin Crotty
SVP/GM
NetEnrich, Inc.

This is not based on a true story – it’s actually true: A managed service provider coyly tells the story of how he’s discovered the power of marketing. Since actively promoting his stable of services, he’s seen a steady increase in sales and, subsequently, revenue and profitability.

When asked for specifics on what kind of marketing he’s doing, he replies, “I don’t want to say. I don’t want to give my competition any ideas.”

Here’s the funny part, he really didn’t know who his competition was. He’s a regional managed service provider with an operating radius that reaches four states and four major metropolitan areas. When pressed for who his competition is, he says, “I think there’s, like, five.”

Now, you can only imagine the look on his face when he was told that there were actually more than 5,000 potential competitors operating in his patch. The color just drained from his face.

Some people might take the moral of this story as you need to think hard about who your competition is and how much competition you’re up against. In reality, the moral is you needn’t worry about competition if you’re doing a good job and stay focused on execution.

Competitive analysis is one of those things business gurus and consultants dwell on. Is it a good idea to know about your competition and know what they’re up to? Absolutely. Is it a good idea to obsess about competition? Absolutely not.

Focusing too much on competition – real or perceived – can lead to operational paralysis. Some managed services and solution provider companies succumb to competitive analysis because they incorrectly believe they must counter every move, offer similar products and match prices of their so-called competitors.

As our friend above discovered, he was swimming in a sea of competition, many of which already knew his marketing secrets because they really weren’t secrets. His success came not from beating the competition, but rather focusing on what made his managed service business better: attention to detail, quality in service delivery and business-oriented solutions that added up to real value in the eyes of his customers.

The other reason for that MSP’s success was mathematics. Even with so many competitors in his service radius, they were dwarfed by the sheer number of potential customers. It’s simple supply-side economics: When supply is constrained and demand is high, even a modest entry in the market will succeed. In other words, he wasn’t running into too many competitors because there was so much potential business to be had.

Does having an under-supply make sales easier? Sometimes, but mostly makes capturing interest easier. Sales is, and always will be, hard. And that leads us to our final point: Who is the real competition? In many instances, the real competition is none other than the customer or yourself.

Customers are the worst competitors because they must be convinced they can’t do it themselves.  These are the types who will buy IT products through retail and patch together systems with bailing wire and bubble gum. They’re cost-conscious and risk-adverse. Convincing them to abandon their DYI ways is often harder than defeating a rival in a competitive bid.

And, of course, competition is always found in the mirror. Failure to plan, focus, execute and take risks often does more to sink a business than any competitor can do through marketing and pricing.

If you focus on what makes your service valuable, you’re more than likely not going to have to worry about your competition – whomever they are.
 
Jennifer Anaya
VP, Corporate Marketing, NetEnrich, Inc.

P.S.  We’re finalizing our BIZ DEV webinars to close out the year. Check out our Dec. 7 event with Larry Walsh, of Channelnomics and the 2112 Group. We’ll reveal a new white paper that he’s drafted on managed services pricing.

Two conflicting themes permeate the managed services marketplace: the accelerating and continued growth opportunities, and the rampant talk of pricing pressure and commoditization. Both are true, but where you stand on these issues isn’t.