Magazine Article | April 23, 2013

Here's One Reason Managed Services Will Be Your Demise

By Jay McCall, networking and managed services editor, Business Solutions Magazine

Before I share some important advice with you, I feel it’s only fair that I start with a small disclaimer: I don’t like to read directions. When I or my kids get a new gadget, part of the fun is figuring things out on my own — without doing a ton of reading first. After all, most directions are pretty self-explanatory. I don’t need one more threat that handling a plug with wet hands could cause me to get shocked or the fact that running over the gadget with my vehicle is not covered under the warranty.

Based on the number of VARs I’ve spoken with over the years, I’m confident that many of you reading this feel the exact same way. So we’re on the same page.

I’m betting that it’s not too much of a stretch to believe that you’ve operated your business in this fashion since you first opened your doors — and it’s probably worked out just fine. For example, you probably started out with just a few clients and before your business really took off, you had to take a few projects outside your area of expertise just to make ends meet. Perhaps you learned how to set up dynamic firewalls “on the job,” or maybe your first backup restore happened the first time you really needed to do one. When all was said and done, the data was restored, the client was happy, and you got paid. No big deal.

Managed Services Requires A New Mindset
Now, for the bad news. Managed services doesn’t work this way. Here’s why: With managed services, you’re going to be asking your customers to pay you more than they did previously, and they’re probably going to see you less. Unless you do your homework and develop a good reason why that makes good business sense for them, they’re going to laugh and tell you the equivalent of “Thanks, but no thanks.” And that’s the best-case scenario — it could be worse. Here’s how: You might actually convince them that switching to a managed services program is so valuable for them that you’re willing to lower your monthly service rates for the first year, in the hopes that once they see the value they’ll gladly pay more next year. That never works. Ever. Now, you’re stuck with another dilemma: Do you cut corners on your services to minimize your losses, or do you try to lower your salespeople’s commissions? Either way, it’s a losing proposition.

There may be some exceptions to the rule, but I wouldn’t bank on it. I’ve spoken with a lot of VARs that have learned these lessons the hard way. Even the VARs that do “read the directions” aren’t guaranteed success. Also, it’s actually normal for a VARturned- MSP to experience a dip in sales while it’s replacing larger project-based business with smaller, recurring revenue opportunities.

But there’s one thing that I’m absolutely certain about. If you try to wing it with managed services the way you did when you first started your reseller practice, it’s going to bite you. In a break-fix environment, you can afford to learn on the job because you’re paid for the time it takes you to get the job done. With managed services, you’re making a one- to three-year commitment to your customer that “this is what you’re going to pay us each month to keep your business running smoothly. The burden is all on us — you won’t need to worry about a thing.” Maybe this is a good time to overcome your aversion to reading directions. Even if you only make one exception to your rule, it could make all the difference in your business’ longevity.