Top Lessons Learned in Building My Managed Services/Managed IT Services Biz1 Feb, 2013 By: David Pohlman, GreatAmerica Financial Services/Collabrance imageSource
Three years ago, GreatAmerica identified a customer need for assistance in getting into managed IT services, and invested in building Collabrance, LLC, a Master Managed Services Provider (MMSP). To date, we’ve worked with many dealers that have partnered with Collabrance, and we have seen the opportunities and challenges dealers face with managed IT. If the office equipment industry is going to generate growth for years to come, having dealers become successful offering managed IT services is crucial. To help with that, we thought we’d share a few of the top lessons learned. While there are a host of other top lessons, we’ve noticed a few common themes amongst many office equipment dealers in building their managed IT businesses successfully.
Identify the Right Customer Upfront
Stargel Office Solutions based out of Houston, Texas, researched the managed IT services business opportunity and decided to move forward about a year ago. Tyson Stargel, Vice President of Stargel Office, says that the toughest part for them was the sales and sales prospecting aspect. “Our sales reps would keep trying to go into small customers with 10 end points and under. But what we learned was that if the customer is too small, they generally can’t afford Managed IT services in a way that we can be profitable.”
Milton Bartley, CEO of ImageQuest out of Nashville, TN, agrees. His focus has been on watching his managed IT services business’ margins, and starting with the right customers is a big part of that. “A good service company must have a minimum 30-40% gross margin (GM), but a truly great service company should have 50% or higher GM in managed IT services. If we get in with a customer that is too small, and can’t afford spending at least $2,000/month with us, that’s a good sign we’re not going to be a good fit. They are going to be very cost oriented, require a lot of attention, likely not invest in upgrading technology when we need them to, and ultimately work us down to where our margins are nowhere close to where they need to be.”
Roger King, President and COO of EO Johnson Office Technologies, agrees that finding the right customer is important. EO Johnson has been a successful office equipment dealer in the Midwest since 1957 with five locations today. To get into managed IT services, EO Johnson partnered successfully with Collabrance, but in 2012 decided to acquire its own MSP provider. “Customers can forget what they paid for a service, but they’ll always remember what they got. So if you land a customer that is on the smaller side, and you don’t really have the margins where you need them and something goes wrong, you’re still going to have to take the time to fix it, and that might erode your profitability in the deal.” King says EO Johnson tries to stay focused on customers that aren’t too small, but that also aren’t too big. “We’ve found that customers with 25 to about 125 end points are the sweet spot for us.”
Stargel says that while they have a larger customer and are handling it well, they’ve found that if the customer gets to be over 75 end points, that’s typically where they hire someone to handle their IT internally.
From the Collabrance perspective, we see the ideal customer size within the range of 15-50 users, or end points. Within that range, our dealers can create great value and alleviate the IT burden.
Beyond size, we also encourage our Collabrance partners to consider choosing prospects that are highly dependent on technology and value its uptime. If the customer is too small, or doesn’t value system uptime, cost is just going to be viewed as too high for value delivered.
If you choose the customer profile well and engage accordingly, your experience will be smoother and your profits will be greater.
Hire the Right Sales Talent
Selling managed IT services is not like selling copiers. According to Sally Brause, Director of HR for GreatAmerica PathShare HR Services, “It’s a more consultative sales approach. Good managed IT services sales people will take the time to work with a variety of individuals in each account to understand their unique business needs. This consultative sales process may result in a little longer sales cycle which can frustrate some sales people.”
Stargel hired their VCIO (Virtual Chief Information Officer) three months before they launched their managed IT initiative. They then began looking for the right sales talent. “It took us almost the entire first quarter last year to find the right sales person. In the meantime, we had our traditional hardware reps talking about it. However, they were afraid to talk about IT and networks.” Stargel says he wasn’t looking for a highly technical individual, just one that could be
strategic and consultative. “When it gets technical, that’s where our VCIO takes over.”
King says at EO Johnson, the goal is for the copier rep to get the IT specialist sales rep involved. He doesn’t expect the traditional copier reps to sell managed IT services, yet feels that over time some will make that transition. “Just like when we went from analog to digital, or from black and white to color, we involved a specialist, but eventually some of the traditional sales reps were able to develop the expertise to sell it themselves.”
“You don’t want a traditional copier rep out there,” Bartley asserts. “They are so used to negotiating to get the signature. We’re about being different regarding the way the customer is doing IT and it has nothing to do with price. An IT sale done properly is not a negotiation. It is a consultation. You sit down with your customer and help them figure out how to get their business where they want it.”
Bartley adds that if the sales rep doesn’t sell the value, and bends on price, your dealership will end up sorry. “Do not bend on your pricing. There are not as many contracts in your managed IT services business as in a traditional copier business, so one bad contract can make a heck of an impact on your bottom line. Much of that comes back to having the right sales person selling the value in the first place.”
Utilize a Sales Process
As Bartley says, “Selling IT is easy. Selling managed IT services is not. There’s no silver bullet.” That said, finding a sales process that works is paramount to overall success. Bartley uses a check list, if you will, but he uses this check list differently with every engagement. One piece of his process that he never veers from is introducing pricing very early in the process. “After I have explained how we’re different and what value we can add, I have a frank discussion with them that includes sharing, at a very high level, what they should expect from us regarding pricing. I usually get within 15% and if they fall off their chair, I know early on that this customer is not going to be a good fit.”
Stargel states that with their sales process, the sales reps work with their VCIO to engage the customer. “Our sales reps get the customer to the point where the customer says, ‘yeah, I do need to go with your company because our network isn’t where it needs to be.’ Then, the VCIO will help put pricing together and go out with the rep to do the proposal and answer any technical questions that may arise.”
Whatever sales process you choose, find one that is repeatable and one that can work for your organization.
King feels the BTA channel shouldn’t make this evolution too hard. “We can absolutely compete in this space; we just need to keep it simple. Dealers need to understand that this is an evolution of our offerings. It’s not all that different. Sure there’s different training and different technology. But at the end of the day, we’re still solving our customers’ problems and trying to help them make their businesses run better.”