Technology vendors are a creative bunch, but even they cannot create the range of products and services required to fill all the needs of every customer.
Often it falls to channel companies to fill in the gaps. And every so often it becomes apparent that those gaps aren’t just one-off occurrences. The question then is whether to turn that gap into an ongoing opportunity.
While the lure of the ‘build it once, sell it often’ is a strong one (after all, that’s what vendors do), the transition from services company to product supplier is often harder than it looks.
We spoke to a number of channel organisations that have successfully crossed that chasm about the difficulties they faced along the way, and whether or not they would ever do it again.
Spotting the opportunity
Jamie Warner was very familiar with the problem he set out to solve in 2013 when he created the customer service management app Invarosoft. It was the same problem he faced each day for more than a decade while running his managed service provider, eNerds – keeping on top of the deluge of customer service interactions.
“We were getting far too many phone calls, and email was hurting us because we weren’t getting the right information and had to keep going back and forth,” Warner says. “So I thought maybe we could build some software for that. And that is where it all started. I thought in 2013, if no one else is going to do it, then I am going to.”
James Coxon also had first-hand experience of the problem that would ultimately lead Melbourne AWS partner Versent to spin out cloud management tool Stax as its own entity.
Coxon cut his teeth in the public cloud at NAB, migrating workloads to Amazon.
“We wanted to harness the power of the public cloud, but we didn’t have any confidence that we were able to see, touch, feel or know the cost profile and the risk profile of all of this amazing stuff that we were doing,” Coxon says. “We hunted around for products and services that were in the market, and we just couldn’t find anything that was suitable for the top end of town.
Barely six months after co-founding Versent in 2014, Stax was born.
“We were naturally nervous about starting a business and then deciding to start another business,” Coxon says. “But the thing that gave us confidence was the constant questioning and desire from our customers.”
But for Cohesio Group’s CEO Nishan Wijemanne, the inspiration for his company’s spin-out actually came from a very familiar source.
“I was having a beer with the head of online at Cotton On one evening, and he said he needed to figure out a click-and-collect strategy,” Wijemanne says. “And I said, ‘give us a crack at doing it for you’. And it kind of went from there.”
Operations automation tool Ignito was born.
Cohesio had actually been founded in 2014 as the voice technology specialists VoiceID, but over time had diversified its capabilities, including doing custom development work for clients in the retail and quick service restaurant industries.
It helped that developing repeatable software products also fitted Wijemanne’s long-term vision.
“Even when we started five years ago, the idea was the more we got into that space, the more value we can offer our clients,” Wijemanne says. “And this is a great opportunity for us to do that.”
Similar thinking had also led the Brisbane-based value-added reseller Bistech to examine how its expertise in analytics might be applied in a product.
“We took a step back and looked at our corporate strategy, and our expertise in how to be successful in analytics solutions rather than in any specific piece of vendor technology,” says Bistech’s executive director for strategy and solutions, Brad Culbert.
“So we looked at what repeatable solutions in IT we had across our customers, and created a catalogue of solutions.”
One that stood out was expertise Bistech had acquired in retail loss prevention. The result is Retail Defender, which uses advanced analytics to identify theft and wastage in retail operations.
Spending money to make money
Many channel companies only make money when staff are actually on the tools, so they try to minimise ‘bench time’. But every minute that is spent building a product is time that can’t be immediately billed out to a client.
Warner says Invarosoft was fortunate in that eNerds generated enough cash to cover the cost of developers.
“eNerds has been funding it, and that’s the benefit of running a profitable MSP,” Warner says.
This was also the case for Stax. General manager Dave Slutzkin says the cost of development was made easier by the constant demand from Versent clients for exactly what Stax was building.
“Selling products is what I have done a lot of, so it’s been fantastic to work with that different perspective that you get from the consultants,” Slutzkin says. “They are constantly feeding ideas on issues and where the market is going.”
As a result, Stax now has more ideas than it can possibly build into products.
“You’ve always got a limited amount of resources, so the challenge is always working out which of those things is most important,” Slutzkin says.
At Bistech, Culbert says the idea of using non-billable time to build a solution was initially frowned upon internally.
“And that was a bit of a mindset shift that we had to work through to legitimise that non-billable time,” Culbert says. “Questions start to raise in your mind about the investment you are making, and whether you need to continue to invest or cut your losses and move on.
“The leadership team sat down and decided the only way we were going to do this was to hire a full-time resource to work on it, so we took the step to do that.
“We have managed that risk by having a considered investment. We haven’t gone all in.”
It always takes longer than you think – mostly
For Invarosoft, Warner had already created a hard-coded version of the product for use within eNerds, but he realised a commercial product would need to be something the client could customise for themselves. That effectively meant redeveloping the tool from scratch.
“I thought it would take a year or a year-and-a-half, and it took three,” Warner says.
Culbert agrees that expectation management is a key skill when productising IP.
“You set out with an expectation that within six months you are going to be able to build all your go-to-market and then actively be selling,” he says.
“Whereas the reality is it takes far longer than that to work through all the things you need to do.”
Not all products take so long to come to fruition. It was only a week after Wijemanne had consumed his fateful drink that the team at Cohesio was briefed on what Cotton On needed, with a proof-of-concept built out just two weeks later.
Cohesio then hired three developers on to the project, and three months later was ready to launch as the basis for fulfilling Cotton On’s online orders in New Zealand.
Meeting customer expectations
Just quietly, one of the benefits of being a channel organisation is that when things go wrong, you can blame the vendor. That doesn’t work so well when you are the vendor.
It is too easy to scrimp on assets such as tutorials and documentation in the rush to release a product and generate revenue, but this will cause headaches from a support perspective if the assets are not properly created and maintained.
That is only the first point on a laundry list of things that vendors provide which resellers might take for granted.
“Normally when you sell a product you rely on the vendor’s terms and conditions,” Culbert says. “When you host and manage the whole solution yourself as a managed service, you need to think about all those Ts & Cs yourself and have those in place. That was interesting to work through.”
But even after the product is implemented, that is only the start of the seller’s journey.
“Customer expectations change when you take a product to market as opposed to taking a consulting service to market,” Culbert says.
“Having an ongoing pipeline of updates is something that a customer expects when they are purchasing and paying for a subscription-based product. You need to be planning for an ongoing backlog of enhancements going forward, so customers feel they are getting value for money on an ongoing basis.”
Not all channel organisations choose to monetise their expertise through specific products. For Arq Group, a key part of its future lies within the mobile development specialists it acquired, Outware.
Today, Outware represents a capability that Arq Group can bring to market to support its transition to becoming an omnichannel customer experience company, sitting alongside other acquisitions such as the analytics specialists Infoready.
“The value proposition of Arq is to think much more broadly across web and mobile and voice and a much broader omnichannel experience,” says Arq Group’s executive director of innovation, Peter Collins. “So the work that is happening today in Outwear is absolutely in transferable knowledge and service offerings into the Arq value proposition.
“And over the next 12 to 24 months it will become an increasingly important part of how we go to market and how we build products.”
That will also see Outware looking for opportunities to create its own repeatable IP for clients.
“When you look at the proliferation of front-end channels, most enterprise customer experience strategies have been built around web and mobile,” Collins says. “So there is a huge interest in design systems and component-driven design and development to increase reusability.”
Of those channel organisations spoken to by CRN, all said they would happily look at other opportunities to creates repeatable revenue in the future. Bistech has already done so, having built out modules for financial performance management tasks such as budgeting and forecasting, and capital expenditure modelling, which can be applied and monetised across multiple clients.
“So as we continue to evolve our own thinking, we are looking for opportunities in our traditional business to change that revenue stream fromonce-offf project-based consulting to recurring, even if it is not a full-on off-the-shelf solution,” Culbert says. “The trick is isolating specific industries that you can differentiate in, as we have done with Retail Defender.”
Warner says he would also happily consider launching another product at a future date, but says he knew from the start with Invarosoft that it would be a 10-year commitment.
“I have to say, from bring an MSP and a professional service for 18 years, and then going to launching a product business, it has been fascinating,” Warner says. “A bit scary, but it has been a really enjoyable experience.”