Lessons from leaders at the CRN Fast50

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This article appeared in the January/February 2015 issue of CRN magazine.

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Lessons from leaders at the CRN Fast50
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Last year's CRN Fast50 event kicked off with two hard-hitting panel discussions between some of the channel’s top personalities, representing the reseller, distie and vendor tiers

Panel 1: Sales

For the first panel discussion, we gathered a group of panellists spanning the vendor, distie and reseller tiers of the channel, to look at the shift towards managed services, cloud and annuity revenues.

Just how important is this trend? If we look at the 50 companies in the 2014 CRN Fast50 as a microcosm of the channel as a whole, it’s immediately apparent that services are on a rapid rise across the channel. Over the six years of the Fast50, the share of revenues from hardware has decreased from 40 percent in 2009 to 28.3 percent this year. On the flip side, we have seen services rise each year, from 41.2 percent in 2009 to 62 percent this year.

While not all services fall under the umbrella of managed services, this was the largest activity across the Fast50 companies, representing 21 percent of overall revenues, or $164.2 million.

[Want to enter the 2015 CRN Fast50? You can pre-register here]

So with these indicators in mind, we asked the six panellists to share their opinions on the managed services trend.

The growth of managed services, said UXC Connect CEO Ian Poole, is a response to client demands to pay for outcomes, rather than technology. The channel needs to be aware that there is a significant mindset shift in moving from “delivering a project against a technical spec” to “delivering an outcome-based business solution”.

UXC Connect provides managed services to Melbourne Water, Virgin Airlines and Viva Energy, and Ian Poole warns that “the SLAs can be complex to measure and report on”.

He contrasted managed services to more traditional professional services: “If you implement a professional services project around a Win7 upgrade, for example, you would likely set up a reactive support agreement following implementation.

“This would often be completed as a technically focused project with the engagement primarily with the customer’s technical teams. If this was a component of a managed services engagement, you would engage and implement from the business side, therefore, the provider must be significantly embedded across the account to understand the business implications of the deployment.”

To set up a managed service capability, Poole stresses that providers need a comprehensive set of assets. The first is around an ITIL toolkit. “You also need a series of tools to manage and monitor the server, compute, network and storage environment,” said Poole.

“The second is the process to ensure that when an issue is logged, it is managed through to completion. The last, and most important, is the people. 

Poole drew a distinction between managed services and “a complete outsource”. Many customers are moving towards managed services because it gives them greater flexibility to pick and choose what environments they want to manage themselves, balanced against what they want to deliver through external managed service providers.

“Organisations want a model that delivers best value for their business. For example, they may want to manage a bespoke application themselves in-house due to its unique complexity, and partner externally to provide a managed service for a UC environment and service desk, because it delivers greater outcomes for them.”

ASI Solutions is another veteran channel outfit that has been dabbling in managed services for many years. Executive director Maree Lowe said that having a service and support operation has helped ASI Solutions win new vendors. “We have picked up exclusive distribution technologies because we have been focused on being the service desk and technical support of whoever we work with.”

She said that taking on a managed service contract presents risk as well as opportunity. “If you want to own the contract and become the prime contractor then you must always understand, consider and assess the risk. Also, another important element is that you must understand, learn and work within the customer’s business, and then you link yourself into that customer’s business.”

Lowe said that managed services is not a fair-weather strategy, nor are contracts for the faint of heart. “The best advice for any SMB would be to spend the money on setting up legal contracts during the engagement period, especially where you expect long-term relationships.”

Some of ASI’s most successful managed-service contracts have come from leveraging channel relationships with the major outsourcers. This was one of her top tips for other resellers.

“Back in the year 2000, there were many major outsourcing contracts. We had to learn to partner with the majors such as IBM, CSC, EDS and Fujitsu. So what we did was, we went searching for the companies where we thought ASI’s offerings would fit in with their national strategies.”

She also said that as a direct service supplier today, ASI Solutions was well positioned to meet the needs of SMB customers with up to 200 staff, but winning deals in the big end of town required developing connections with the large outsourcers, sometimes directly, or sometimes by leveraging shared relationships.

“If we say we want to service larger corporate customers, we must look at the vertical markets and ask, ‘Where can we work?’ There’s no point chasing Coles and Woolworths as a direct supplier. Those contracts will be owned by someone like a Fujitsu. We can endeavour to get the big end of town game, or we can chase another partnering company such as a supplier who can then position us to work with either the prime contractor/client.

 “As we are skilled in point-of-sale services, we could pitch to the prime contractor at a top level; but we might also engage with Fujitsu by using our vendor technology suppliers.”

Successfully closing a managed-services deal also hinges on the shift from the incumbent supplier. Even if the contract seems like it is yours for the taking, the incumbent will have its hooks into the client.

“Recently, a client came to us because they were unhappy with their current managed-service provider. They wanted a total managed solution,” she said. “We presented a great proposal that we know they really wanted.

“But in the end, we lost. What defeated us? It came down to risk. The client was locked into their current software solution, which was part of their overall managed-service contract and were not ready to move away. However, they do know that in the next year, they will need a new software application, probably cloud-based. Our offer was extremely attractive but, in the end, they were not ready and could not consider deploying a new software solution. So we will wait and see next year!”

Offering some insight into the client-side perspective was Shane Martin, who has spent many years in buyer-land, including stints as CIO of both Mirvac and Stockland. Now working as an independent consultant, he is currently working part-time as a strategy consultant at Huawei in its enterprise business.

He said that CIOs are all looking hard at IT-as-a-service, subscription-based pricing and the cloud. But Martin said transitioning to a new supplier or new delivery mechanism was a big deal. “My experience, and that of a lot of CIOs I have spoken to, is that a lot of time they feel a little hamstrung. They have these data centres running applications and they think, ‘How do I even start?’.

“The normal way to start is around something new: a new requirement or a new application. CIOs are saying, ‘I will acquire this new application or service, and it needs to be delivered as a service in the cloud.’

“The customer will continually get asked, ‘What is the risk profile?’. So managed switch providers need to be able to respond to these questions. If I am running your services, com-munications, servers, what is the disaster recovery? What certification do you have around penetration testing? What is your incident management approach?

“Customers need some comfort from MSPs. A lot of customers will demand full transparency for DR and pen testing, done by third parties. If I was in the MSP business, I would be adding risk management into the mix.”

There’s no doubt that cloud and managed services are front of mind for buyers, said Martin, though it won’t happen overnight. “What I am seeing is that the conversation with the CIO tends to be, ‘We have cloud-first policy for anything new or anything being upgraded. Over the next decade we would like to not have anything on-premise.’ They talk about that being a decade-long journey.”

In the meantime, there is still plenty of scope for on-premise technology. But the rise of subscription-based deals is having an impact there, too. For data-centre-focused distributor DPSA, the answer is ‘don’t beat ‘em, join ‘em’. Astrid Groves, national service manager at DPSA, said that the distie is providing flexible pricing models to offer the financial benefits of cloud with the comfort of on-premise.

“Even if customers are in the cloud, they still have some centralised equipment on-site, such as networking and storage. I don’t know any company that is 100 percent in the cloud.”

Groves explained how DPSA has a new opportunity for partners to provide secure, self-contained, redeployable on-site infrastructure for customers through their vendor partner Zellabox, supplier of modular micro data-centre solutions.

The Zellabox is owned by the partner, installed on the customer’s site and paid on subscription. “There is nothing else in the market that will allow a partner to offer their customers a managed micro data centre where they can house their on-premises equipment but pay for it on subscription. Seeking new types of vendors allows us to help MSPs to find new market opportunities like this.”

She said that DPSA is happy to look at flexible models of pricing for its other products, too. “We are heavily involved in helping partners shape annuity deals for customers building data centres. In the UPS and cooling space, the partner sells the kit up-front, installs a lot of hardware, and then charges renewals on the servicing of the hardware. This puts a heavy load on the customer’s capex budget.

“Now we are offering an opex model where the infrastructure is supplied as an all-inclusive package up-front and charged out. The partner sells the data-centre infrastructure on a five-year contract, fully inclusive of install, maintenance and disposal, and billed on an ongoing basis. The partner gets a regular and more predictable revenue stream, and the customer doesn’t take the big capex hit up front and isn’t left with obsolete equipment,” said Groves.

Some infrastructure services are a logical first step to cloud delivery. Backup and DR are an ideal fit for cloud services, said Don Williams, APAC vice-president at Veeam, because businesses need recoverable data off-site. The vendor has recently announced Veeam Cloud Connect, as part of Veeam Availability Suite version 8, which can provide backup into clouds. Veeam has been working closely with Microsoft Azure, VMware vCloudAir, and local providers to deliver backup to the cloud.

Williams called backup and DR “one of the clearest use cases” for cloud. He advised that start-up MSPs would be smarter to lean on the investment of public cloud giants rather than sink capital into their own data centres.

“Data protection is one of the first cabs off the rank. A good strategy is an off-site data centre, but that can be expensive. Leverage providers who have the capability to store data off-site. It is tough to compete with commodity cloud providers on price, but there are opportunities to leverage their infrastructure and build services around your offering. With Cloud Connect, Veeam a partner becomes a service provider within 10 minutes.”

Williams said the subscription pricing model makes sense. “Your customers are paying for what they consume. If they are not happy with service levels, it is easy for them to stop. They are now just a mouse click away from your competition.

“Veeam’s goal is to make sure our partners are delivering exceptional outcomes and securing the revenue stream for the future.

“There are some good examples. [Australian Veeam partner] Zettagrid has been working with the Veeam technology for several years. They have been able to build backup as a service, which leverages Veeam technology. The Australian channel is well placed to take advantage of the cloud in all of its forms. Veeam unlocks this potential,” said Williams.

Distribution Centre’s Nick Verykios offered a reality check on the whole cloud and managed services conversation. Yes, there is a shift among customers to buy technology as a service, but this shouldn’t make straight hardware and software reseller doubt their place in the channel. “Most resellers are really good at what they do and they need to keep doing what they are doing because that is what their customer want.

“The perfect answer is, if your business is going to a customer and solving their business problem, you do nothing different. Find out the problem, work out how to solve, then go and get it from your distributors.”

As long as resellers understand what customers want, they will thrive. “Don’t lose faith in your business model. Don’t lose faith in your process. Don’t lose faith in your product. Just recognise there are multiple ways of solving business problems.”

Next: Panel 2: Progams

Channel programs are a must-have part of any vendor’s toolkit. But while these tools drive channel business, programs are also one of the biggest complaints heard among resellers. Earlier this year, CRN surveyed 150 resellers on best practice in programs.

Respondents told us that while program elements like lead-generation, rebates and discounts were all extremely important, they couldn’t replace product quality and support. However, when technology is of equal quality, the program benefits can become the differentiator. This is especially true at the disties tier, where they are selling the same product.

To unwrap some of the issues surrounding programs, and to define best practice, we gathered a group of channel leaders on stage at the Fast50 to thrash it out.

Anittel has partnered with many tier-one vendors, which has given managing director Peter Kazacos a firm idea of what works and what doesn’t. He praised those vendors that helped Anittel during its early days.

“We do a lot of Cisco. One of the biggest issues I have found is when the companies are small. When Anittel was small, Cisco didn’t see us as small; they looked at the individuals and what was the opportunity to get a result. Others will say, ‘Hey they’re not big enough to get a result, here’s junior rep, best of luck!’.”

He also admired vendors who took a longer view. But Kazacos has also seen much of the bad practice in programs. One bugbear is vendors that try to directly incent a reseller’s sales team. “When they give direct to our sales people, it creates a behaviour that is not aligned with what the company wants to do. For example, you have sales force and need them to sell a certain mix of product. Then one vendor says, ‘I will give you a Visa card worth X, Y or Z’, and it will sway salespeople to sell that. If you are a single product company, no problem; but where you are selling multiple products and services, it can skew the strategy.”

To overcome this issue, Anittel pools these kinds of incentives and shares them across the team.

“The other thing that has a negative side is accreditations. I am very supportive of accreditation, but the issue is that the accreditation follows the individuals and the individual can hold the company to ransom. They can move and the company can lose accreditation. You as a company can suffer because you spent a lot of money on this person and they left, and another company found an easy way to get them.”

Kazacos praised vendors with rules to weed this out. “I know some vendors won’t accept a new company for a few months to stop that kind of poaching. The vendor has to be the sheriff.”

He also recommended vendors use their power to stamp out damaging behaviours from buyers, such as “when the end customer plays the partner against the supplier”.

“He gets the partner to do a whole lot of work, because the vendors won’t do it, then once they have the solution designed, they go to the vendor.”

The other reseller on the panel, Somerville Group boss Craig Somerville, agreed that while some problems with programs weren’t the fault of vendors, the vendors must adjudicate the system.

Deal registration is a popular program element that is intended to protect resellers who put the work in. But Craig Somerville offered an example of how rogue partner behaviour could derail it.

“A customer puts a tender out and a reseller deal-registered it for two networking vendors. We were a certified partner for one of the vendors and we know the customer well. So we rang the vendor and said, ‘We want to deal reg it,’ and they said, ‘Sorry, someone else has already done it,’ so we didn’t put a bid in.”

However, the other reseller only put a bid in for one of the two vendors. This reseller had essentially roadblocked Somerville Group from pitching for the work, and also stymied one vendor’s chance to win the account.

“Stuff like that, the partner should have banned from deal registration,” he added. “Often it is partner behaviour that can be atrocious, but vendors put up with that.”

Somerville is a fan of vendor pro-grams that allow flexibility around credit terms. “Sometimes to get an extra 15 days of trading terms takes a whole lot of pressure of your cash flow. Say we  have 30-day account with customer and a 30-day account with the vendor, and the customer finds an excuse not to pay in 30 days. Having that flexibility is very valuable.”

The topic of credit limits and terms was close to the heart of another panellist, Paul Mitchell, general manager of distribution finance at GE Capital. GE has been making a big push into the ICT sector, where it has been warmly welcomed thanks to the need for flexible finance, said Mitchell.

“Where we are having our wins is that time between paying for the equipment and when you get paid – the working capital cycle. We see financial flexibility in terms of enabling greater credit limits and longer terms as a key part of both the vendor and distributor’s channel partner strategy, arguably, as important as deal reg, incentive schemes and so on.”

After the panels concluded and guests moved to the 90-minute Fast Networking element of the program, GE Capital’s booth was flooded with companies looking for solutions to the finance and credit issues.

During the panel session, Mitchell told the audience how disties in particular were turning to GE Capital because it helped them remove the risk from their balance sheets.

Likewise, vendors are leaning on GE Capital to add financial elements to their partner programs. For instance, one PC vendor might use more generous credit terms and limits to swing a distie into preferencing them over a rival OEM.

The panel boasted three represent-atives from the vendor community with different experiences around building and operating partner programs. Daniel Campbell, channel manager of Fujitsu, shared some insight into how he had totally overhauled the company’s program. While the program was guided by Fujitsu’s global framework, “we started from scratch”, he said.

“One of the advantages we have as a vendor is a lot of flexibility to shape our programs at a local level. There was a framework but no real meat on the bone. We built the program from the ground up based on feedback from partners. It’s an acquisition, not a retention, program: it offers aggrieved rebates and a lead-gen program.”

As a more recent entrant to the commoditised server market, having this kind of generous program is a way for Fujitsu to convince partners to step away from their incumbent supplier.

“The main thing people kept bringing up is lead generation, finding ways to bring them business opportunities. We have gone through several iterations of our lead-gen program. As a vendor, you must appreciate that if you want a reseller to come across to you, there is a cost. We had to build a program that puts enough on the scales to tip it over to us,” said Campbell.

“A partner program is a fundamental ingredient. There are also things like product quality and competitive pricing up front, but  certainly the partner program we built has been a key factor in our success.”

One elements that has also resonated with partners has been free training. Campbell said he recognises there is a cost to the partner “if they are going to send an engineer to do five days of training, so all of our training programs are complementary”.

Another vendor on the partner-acquisition hunt is ESET. The security provider is trying to aggressively grow its market share in Australia, and national channel manager Gerard Nunez said the program was an important tool.

“We give very high margins. We are on an acquisition cycle of business; we want to acquire as many reseller as we can at the moment. It is fair to say we are giving reasonably high margins – better than most of our competitors – and it is because we are young and new in the country,” said Nunez.

He listed a bevy of program instruments that ESET is using to gain traction in the local channel. “We tend to promise the channel we will protect their revenues and make sure they have a renewal protection scheme, as well as offer education, certification in our product, and we also offer free marketing materials as well as the use of our portal.

“But the high margins tend to get some attention. It is an easy conversation to have where the resellers can see money,” added Nunez.

A considered approach around licence renewals is another part of the current formula.

“At the moment there is a lot of discontent with certain companies. It’s not my place to say other companies are doing a bad job, but there are resellers with a serious concern around how renewal revenues have been treated. We are promising a complete change of scene in making sure they have their renewal option guaranteed.

“If a company was to sell our software, their renewals are protected for the next two years. If a customer decide to go to the web store and buy the software direct from our website, we would recognise that reseller’s income for two years until we start owning the support. If a reseller contacts that customer and the customer keeps going with them, we have no problem with crediting them with that money.”

While Fujitsu and ESET are both in the acquisition stage, the other vendor on the panel, VMware, represents a company with a very established partner community in Australia. John Donovan, VMware’s ANZ director of channel, says that while vendors are fixated on quarterly targets, the mark of a good partner program is one that is able to meet the needs of both vendor and reseller.

“It should look wider than just achieving vendor sales objectives. A good partner program should tap into engineering and services requirement. It won’t just teach them how to sell stuff, but also how to be the architects and implementation experts.

“If you look back over 20 or 30 years of IT programs, it was sales, sales, sales. Now we have a bunch of programs that help partners become the one to solve the customer’s problems,” said Donovan.

“Customers aren’t interested in your new piece of technology or how fast it is or why it’s better – what they are really interested in is, ‘How does this make a better outcome for my company?’. It is about how I can use this tech to create a better relationship with our customers.”

To better understand what partners want from a vendor’s program, VMware operates a local advisory council. Among the partners in the group, “a hot topic is around programs and profitability. A lot of times vendors assume that what is right for the vendor is right for the partner. Sometimes you don’t foresee things but the partners do. You build in extra rebates, but achieving that objective isn’t important to the partner,” said Donovan.

He also succinctly summed up VMware’s approach, which also happens to be a neat rule for the vendor community as a whole to take on board.

“It’s always good to engage and collaborate [with others] when you build the program.” 

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