Moving into managed services and building recurring revenues will prove pivotal in shaping the future success of comms resellers. And last month’s Comms Dealer round table session hosted in association with ConnectWise sought to move the MSP agenda forward, addressing key challenges and bringing to the surface how go-to-market potential can be optimised through a community and collaboration led model underpinned by business intelligence, consultancy and best practice learnings.
Targeting the IT managed services opportunity is perhaps the best way for resellers to secure a hard-to-beat strategic advantage, but capability and knowledge gaps may prevent them from developing that competitive edge – and from achieving their growth ambitions. Nick Shepherd, Product & Marketing Director, Windsor Telecom, highlighted some of the practical challenges that resellers face when it comes to executing their MSP ambitions. “A challenge for us was moving from the traditional telecoms world into the IT space,” he stated. “We’ve done that through a mix of partnering and acquisitions, buying the skills needed to be an IT business – and lead with IT instead of comms.”
Another challenge for resellers is how to mobilise their potential to become MSPs through a well founded strategic plan from the outset, based on having the right insights. For Matthew Croxford, Managing Director, Citytalk Group, overcoming this challenge was a time consuming learning process. “We acquired a small local IT business for their skill set and understanding, but we weren’t familiar with how to talk to customers about managed services and bill them,” he explained. “We didn’t have the right model because the policies and processes were not fit for purpose. Acquiring another business made us realise the mistakes we were making.”
Collaboration matters
To help MSPs overcome such challenges ConnectWise has long advanced a community and collaboration led model that addresses MSP go-to-market issues. For comms resellers, business intelligence and collaboration is an underused lever of growth acceleration and Sam Callaghan, VP, EMEA Sales, ConnectWise, believes that channel success hinges on learning, sharing insights and growing together.
“Our service leadership index analyses industry data across tens of thousands of service providers globally every quarter, benchmarking them around profitability and growth rates against over 200 KPIs,” he stated. “This tells MSPs where they sit in the benchmarking and how to improve, based on a 360 degree review of the performance of their offerings in the marketplace and how their overall business is doing against peers. The data shows what MSPs should be aiming for in terms of gross margins according to the best in class top 25 per cent measured on adjusted EBITDA.”
MSPs taking a cyber-focused approach are growing four times faster than those that aren’t, with a standard service growth margin of 60 per cent
Education, knowledge and insights translate into strategic confidence and clarity of direction, providing a solid foundation for early stage and mature MSPs to secure a powerful edge. And Callaghan says putting knowledge and insight at the heart of strategic planning empowers comms resellers and MSPs to grow. This is important because according to Alex Heslip, CEO, Risc IT Solutions, a lack of empowerment in the comms channel is rife. “I’m looking to enhance capabilities through acquisitions,” he commented. “Most of the businesses I look at are MSPs, but I’ve also looked at telecoms companies that aspired to become an MSP – almost all failed.”
Managed services is a strategic priority for comms resellers with long-term ambitions, but slow starters are in danger of playing catch up with successful early movers like Pure Cloud Solutions. “We adopted cloud and the recurring revenue model early but did not integrate with existing networks,” stated CEO Jamie Lake. “That was the foundation of our strategy. We were a Toshiba PBX house and had to invest heavily in educating PBX engineers to become network engineers.
“But we reaped the benefits. Our customers saw value in transitioning to the cloud and that made becoming an MSP more straightforward. However, we still had to acquire the skill set for the IT piece.”
The bar for traditional comms resellers is rising as a growing number of end user organisations recognise, and demand, the benefits of a single supplier managed services approach. Therefore the requirement for resellers to reassess and reset growth strategies becomes more pressing.
Communication is the big issue here... how we communicate with customers on solving their problems
For example, new technology solutions and changing buying patterns meant that Equity Networks’ traditional, transactional go-to-market became redundant. “When we started selling hosted VoIP we got secondary requests to move customers’ IT to the cloud, but we just sold telecoms,” said Managing Director Alex Hall. “We tried outsourcing but that proved to be naive, so we were forced into an acquisition. For us the move into the MSP space was more out of necessity than intent.”
Moving ahead
Equity Networks’ experience also shows us that comms resellers may face challenges when transforming their business model, but becoming an MSP will likely mean the difference between long-term success and failure and this potential make-or-break MSP transformation message is permeating through the reseller community. Carving out a new core operation of course has its challenges and can overstretch an ambitious reseller or fledgling MSP, which raises the question of how the channel can deliver this change and move ahead with confidence.
Against this backdrop, Callaghan reiterated that strategic consultation on how comms resellers and MSPs adopt IT managed services, including cybersecurity, is pivotal. He says ConnectWise’s BrightGauge business intelligence resource provides a way for resellers to understand where they are today and chart a roadmap to realise their goals. “It answers the strategic questions of where you are now, your growth potential and how to get to where you want to be,” he added.
Although BrightGauge provides a way for resellers and MSPs to cross-check their capabilities and growth with peers, and points the way to potentially gaining an upper hand, the expansion of capabilities also means refocusing product and service propositions, which can be another challenge. Despite the opportunity to evolve and increase revenue from managed services, most resellers and MSPs are yet to make the most of bringing complementary products and services into their portfolios. This hesitancy affects their overall performance and removes any opportunity to fully capitalise on what Callaghan says is circa mid-teens year-on-year growth in IT managed services.
Aidan Piper, CEO, Welcomm Communications, hinted at why this hesitancy exists. “Our biggest challenge is multiple vendor relationships and putting a service wrap around multiple products, which requires upskilling,” he said. “The opportunity is showing customers you can do that.”
As we have seen, comms resellers wanting to evolve and progress into the MSP space are facing strategic and operational challenges, and require capability-driven flexibility to change their GTM approach. This, says Callaghan, is where ConnectWise’s community and knowledge sharing approach can help MSPs maintain ongoing relationships with end customers. Richard Swain, Commercial Director, Force 36, explained the benefits of regular customer interactions. “Because we are across so many products it means our engagement with each and every customer is high touch, including cyber,” he commented. “Relationships are always evolving with conversations about what customers can do next and different projects – whereas telephones are telephones.”
Force 36 became an MSP in 2002 and has always sought to provide subscription services. But despite its pedigree Swain says human resources remains a challenge. “You’re having to keep up with so many skill sets,” he added. “Finding capable, qualified people is difficult. This is reflected in broader industry trends, especially with some of the larger customers we work with putting outsourcing back on the table. This suggests they’ve raised the white flag when it comes to resourcing and skill sets. We’re being contracted not so much to provide help desk, but more of a third line infrastructure management relationship from customers that previously did not want to outsource their IT to us.”
This development also shows that customers are willing to pay more for the right services, and chief among them right now is cybersecurity, noted Callaghan. “Covid 19 sparked an eruption in demand for cybersecurity,” he stated. “So we are investing in our own teams, partnering and acquiring to provide partners with an option to work with us.
“Security is probably our fastest growing line of service. MSPs taking a cyber-focused approach are growing four times faster than those that aren’t, with a standard service growth margin of 60 per cent.”
Shayne Grove, Director, Educational Services, Coconnect, has also observed rising demand for cyber skills. “We have Cyber Essentials Plus but a lot of schools and trusts are demanding that we now have ISO27001 which we are moving towards,” he noted. “Many tenders now insist on this.”
Not surprisingly, according to Callaghan, ConnectWise’s cybersecurity partner programme represents a high growth opportunity for the channel. “Partners who adopt the programme are not only growing faster they are more successful across all of our best in class metrics,” he stated. “But it’s not as simple as that – it’s about cracking and understanding your go-to-market. Communication is the big issue here... how we communicate with customers on solving their problems.”
More key points to consider...
Philip Morrisey, Finance Director, Lily Communications
The biggest opportunity is selling IT to the customer base, but the challenge is recruitment. Nobody’s cracked that and those who do will clean up.
Michael Simmons, Strategic Sales Executive, ConnectWise
The biggest opportunity is AI. We’re doing a lot with AI and RPA within the ConnectWise ecosystem and aim to leverage productivity gains in a way that’s good for our customers.
Richard Swain, Commercial Director, Force 36
The challenge is differentiating ourselves from the myriad of commoditised services within the MSP space, and the opportunity is in new products and services like cybersecurity and educating customers about its importance.
Julie Bishop, CEO, IT Naturally
Our biggest opportunity is being a B Corp which makes us stand out not just to customers, but to employees too which resolves the recruitment problem. It has opened many doors for us.
Nick Shepherd, Product & Marketing Director, Windsor Telecom
Educating customers, and internal people, on new products and services is a challenge, especially our traditional PBX sales team. But therein lies the opportunity.
Alex Hall, Managing Director, Equity Networks
The biggest opportunity for us is rapid growth through consolidation, specifically businesses struggling to cope with the demands of modern IT. The challenge is preserving our company’s value drivers and DNA as we grow.
Alex Larcombe, Director, Specialist Sales, Radius Connect
Our greatest opportunity is cross selling products and services – the biggest challenge is demonstrating the value we bring.
Ian Walker, Managing Director, Fifteen Group
We are seeing a couple of businesses failing and business confidence in the UK is still not there yet. The opportunity is in building multiple services and glueing them together with security.