How Aussie resellers are becoming intellectual property alchemists

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This article appeared in the September 2016 issue of CRN magazine.

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How Aussie resellers are becoming intellectual property alchemists

The dream of every IT business owner is to make money while they sleep. One way is to create a product or bundled service that can be sold directly or through partners, usually created from the firm’s intellectual property (IP) and experience.

It’s a process known as ‘productisation’ and it is de rigueur in today’s IT channel. It’s a strategy that promises sales without staff utilisation and profits that aren’t locked to a vendor’s margins.

But where do you find the time and energy? When your earning potential is tied directly to the hours you and your staff work, productising your IP can be harder than it sounds. The approach is not without its challenges. At some point staff engaged with servicing clients must be pulled into development, or new skills must be hired in. Either way, there is a cost involved in paying staff who are no longer generating immediate revenue.

[Read more: Meet 10 Aussie resellers productising their IP]

This was the conundrum facing Denis Stevens, managing director of Canberra consulting business Qirx. He decided to bundle his firm’s 11 years of knowledge, skills and IP into a do-it-yourself cloud toolkit called Qirx in a Box. While some businesses choose to raise capital externally, Stevens decided to fund development from existing cash flow.

“I almost made the mistake of keeping everybody in four weeks longer than I should have,” Stevens says. “But the product keeps growing, and we have found a balance now that works to keep our key technical staff involved in development and also in earning revenue.”

Qirx has also set about building its own channel. It secured Ingram Micro to distribute Qirx in a Box in Australia, New Zealand and North America – a move Stevens describes as a complete change of mindset.

Indeed, the skills required to commercialise IP are very different from those of a services organisation. When the founders of Melbourne-based Amazon Web Services partner Versent set about creating their cloud management tool, Stax, they bought in product specialist Dave Slutzkin as general manager. “When you work on something you own on an ongoing basis, you need a team that buys into that,” Slutzkin says. “A consulting team is different. They parachute in, fix everything and bounce out. My team is 100 percent about building a house to live in for a very long time.”

Huge leap

Once a product is developed that’s rarely the end of the process, as HubOne CEO and founder Nick Beaugeard discovered when creating a bundle of cloud tools for accountants. “Going from a set of tools my guys know how to implement to software that a third party has to deliver requires an awful lot more rigour. Suddenly we leapt from 30,000 lines of documentation to 2.5 million,” Beaugeard says.

“Software is so much more than just code. It’s about process, discipline, testing, quality and documentation. All the things you hear Microsoft talk about are the things that keep me up at night. One screw-up in the quality of our code that causes a breach for one of our customers would mean we’re dropped like a hot potato.”

Productisation can lead to new revenue sources, but it can also help channel partners evolve. For Brad Rappell, boss of Brisbane firm CloudFirst, switching from his infrastructure business to become an early cloud partner with Microsoft was smart. But as Microsoft appointed more cloud partners, differentiation became difficult. So Rappell used CloudFirst’s experience with franchise systems and created a cloud bundle for their needs, called Franchise 1st.

“Our customers know we specialise in franchising,” Rappell says. “I know that if I go up against a generic Office 365 partner today, nine times out of 10 I am going to win.”

Franchising 1st is now developing as a company in its own right, contributing 25 percent of revenue and opening offices in North America. “Franchising 1st is our greatest opportunity for profit and revenue, but it is also a longer investment cycle than the traditional services business,” Rappell says. “It could be greater than half our revenue in six months and three times rvenue in two years.”

Of all vendors, Microsoft has been most vigorous in driving the ‘productising IP’ line. At partner conferences, independent software vendors – not resellers or MSPs – are the cloud channel’s golden children.

Rappell says Franchising 1st has benefitted from significant support from Microsoft. “They have invested in us considerably, in terms of co-marketing and support,” Rappell says. “We are discoverable through their partner hub, they have shot videos for us, highlighted us in the press, and given us development funds to create the marketing assets.”

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