The Move from VAR to Managed Services Provider is Necessary for Growth and Value Previous item Dynamic Value Partnerships... Next item Changes in Federal...

The move toward managed services is essential for a value-added reseller (VAR) who wants to grow his or her business in the coming years, as my colleague, David McNicholas, has written about for EDGE360 in the past. David and I work closely to help Comstor partners and VARs to better understand the value in transforming their businesses to become managed service providers (MSPs) and/or add managed services to their portfolio and what steps they must take to do so.

Today, most companies want to implement cloud services and other more standard environments to realize cost savings, risk mitigation and faster time to market. These are all things they can get from an MSP at a very cost-effective rate, so if you don’t have managed services in your toolbox, those companies may find someone else to support them. You may lose not only the potential business, but you may lose existing business as your customers start looking to their MSP for projects, implementation rollouts and even professional services. Why?

An MSP is talking or interfacing with the customer every day, so they often get to a higher level of intimacy with the customer business that locks that customer to them. As the level of trust in the MSP rises, the customer will ask the MSP about new products and technologies instead of going back to its former provider or VAR. For example, the MSP has greater insight (in many cases) into the customers’ business because of the type of support they provide – they know where the opportunities lie, they have insight into what products may be nearing end-of-life, etc. – so they can add value by making suggestions for newer products, services or solutions. In addition, if the customer has a larger investment (of time, money or business knowledge and information-sharing) with the MSP, that customer might be more likely to respond to advice from the MSP.

When you become that highly trusted advisor, you may be exposed to even more intimate knowledge of the company. I have seen companies ask their MSPsfor opinions and input about business moves they want to make in terms of what it will cost, etc., and even to help them with their M&A projections. As a managed services company, in many cases, you are able to give them a broader view of what technology is out there and what is coming and help them make the right decisions for their business.

As a VAR, your conversations often revolve around “You need to upgrade,” or “You need [this new] __________.” You might be viewed as a person who is trying to sell, sell, sell, instead of being that trusted advisor for the customer. Unfortunately, for you, many times they are more likely to buy from the MSP because the MSP knows when the time is right to try to make the sale, where their system is getting bottlenecks and where things are slowing down. A VAR without managed services has limited options and tends to have more of a “price play” without the benefits and value-add that managed services brings to a client.

I like to compare it to the movie “Groundhog Day.” Every day, the VAR has to come in and sell another one. Every day. You sold one yesterday, but you need to sell another one to keep the lights on, and you have to sell another one tomorrow. You have no annuity business to speak of (or maybe just a “body” or two). It’s the same thing with professional services, in most cases. You do a project, it ends and you have to sell another project. You don’t have consistent cycles of revenue and profits coming in as you are selling projects.

Some VARs fear the longer sales cycle that an MSP experiences, but once you sell to a customer, the contract is normally for a minimum of a year, and sometimes you have multi-year agreements. That allows for forecasting. You will know that you will receive $10,000 a month from a customer, so you can plan on that revenue. It also is coming in at a higher margin than product, allowing you to make some investments and the value of your company will be worth more (the valuation multiples of a company with reoccurring contracted revenues is greater than a project / product based business). It is a completely new business model for the VAR, rather than “I gotta sell another one tomorrow.”

In my next post, I will explore the paths available to VARs and what they must assess before moving to managed services.