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Is the channel’s future like a frog in water that’s slowly boiling?

If you know the story about the frog in water that is slowly boiling, then you know what happens to it. It’s natural for people to adapt to the environment and carry on, not really knowing what’s to come. People always make decisions based on what they know or at least what they think they know. Unfortunately, you simply do not know what you do not know.

If you make decisions on data that is too narrow or shallow then it is easy to get blindsided. Most research paints a picture based upon a sample, but what happens when the sample data is wrong? Everyone thinks we are going left, but it ends up going right. We have seen results of this with the recent Brexit in UK, elections in Canada and currently in the USA.

The IT industry is like a fire hose of research data, polls and white papers that seems to support multiple predictions. Our company also generates a lot of research data and I get to see a lot more than I could ever digest. That said, regardless of the amount of data you look at, it is wise to do your own investigation and find the actual pulse on the street. It will help you make better decisions.

If you got on the Managed Services train early enough and made the right moves, then you will probably have a prosperous future. However for this article, I will set aside all of the VARs and MSPs who have already found a way to be successful and are growing. If you speak to this group, Managed Services is the future and to them, they are absolutely right!

Instead, lets talk about why are so many MSPs are still struggling to grow their business? Why are so many VARs are not transitioning into a MSP? Why are so many channel partners on the brink of financial troubles? Why are so many Cloud vendors still going direct? Where are the new channel partners coming from? What do the experienced VARs know? What are the actual challenges facing the channel’s success?

If you can truly answer these questions in whole, then you will start to get a clearer picture of the current state of the channel and its future. You probably have your own perspectives on all of these questions. And, your insights are probably right or at least partially right. It is only when you stitch together all of the pieces of data points that you start to see the whole truth.

This is exactly what I have been doing since last year and I think I am finally starting to put the pieces together. I have been center stage in promoting managed services and Cloud in the channel since it’s early days. I have been saying Everything-as-a-Service is the future of the channel, so embrace it. To a large degree this is true as if you look around, most companies are already using the Cloud and moving IT from CapX to OpX. Much of the vendors and research are also pointing to this future. However, what got me really sold were the many VARs and MSPs who were successful at exploiting everything-as-a-service. If they were achieving success in this new channel model, then it must be true. Right?

Everyone seems to be focusing on the success stories and ignoring most of the challenges that other VARs and MSPs are facing. In a way, blaming them for not doing what they need to do to transition into a full Managed Service business model. Something seemed off so I started to ask deeper questions to VARs who were simply refusing to adapt the new managed services model. I also talked to many MSPs who were struggling to make it a success. I wanted to know why.

I started to realize that many of these VARs who were refusing to transition maybe seeing something that others don’t see. Actually, there are tens of thousands of VARs who have simply decided NOT to cross the bridge over into Managed Services and just as many MSPs still struggling to become successful.

How can all these smart people all be wrong? Where is the research data to support their decisions? Here is a brief summary of just 10 things that I learned from them…

  1. Many challenges in selling their clients a managed service solution and contract. Clients simply did not want to pay every month for something that they already bought so they preferred break-fix. However, they were open to new purchases under a pay-as-you-go plan.
  2. High cost of investing in the managed service tools like RMM, PSA, Quoting and CRM.
  3. Significant skills required to use the tools effectively and adjusting for each customer’s requirement. Many did not know how to properly use RMM or PSA tools that they bought. Many only used a small fraction of the tool’s functionality. Just implementing a proper CRM practice is not easy.
  4. Commission structure for Managed Service and Cloud did not meet the expectations or motivate their sales people to sell. No more large commission checks. Replaced with smaller monthly payments that were also unpredictable because of SLAs disputes and customer payment habits.
  5. Complexity in efficient automated billing for services of smaller amounts every month with provisions for SLA disputes. Invoices were hitting the street months late and collection times increased. Cash flow was impacted.
  6. Challenges in delivering on a variety of managed services as well as building, streamlining and maintaining their NOC team. At the heart of every MSP is their NOC. An MSP will only be as strong as their NOC. See article on “A fool with a tool is still a fool”. [This is such a huge problem, that a new training program was launched to help MSPs their improve NOC]
  7. Challenges in finding strong leadership to invest, commit and motivate the employees to make the transition.
  8. The underlying instinct that all Cloud vendors will eventually take over the transaction and challenge the ownership of customers. This is a real concern especially with tens of thousands of SaaS companies battling for position in the customer ownership arena [This may be the elephant in the room].
  9. Difficulties to differentiate themselves from other MSPs with the exact same playbook. Everyone looks alike and roughly delivers a similar service. Some vendors provide shared NOC services so in reality all of their channel partners were delivering the same managed service. Enter the commoditization of services and price erosion.
  10. Difficulties in marketing in this bold new digital World. Traditional marketing faded as social marketing took over. Not too difficult to do, but challenging to do it correctly and maintain. Content is king and an openness to share is required. In a more transparent market, VARs and MSPs have to constantly decide what not to expose publicly. Not good enough to just have a web site anymore and many VARs still have weak web sites [Contact VAROfficeSuite if you need some help].

These are all legitimate reasons that are preventing traditional VARs from transiting to a full Managed Service model. It also explains why so many MSPs are still struggling. That said, I should note that they are all selling some “As-a-Service” solutions like Data Centre services, BDR, SaaS applications and so on. Some very smart VARs and MSPs are developing specialized solutions and building some form of Intellectual Property that they can protect and exploit. Some VARs and MSPs are transitioning to become a vendor!

Many people tell me that Cloud/SaaS could be the biggest MSP killer. Will vendors eventually take over ownership of the client? Is this the end game for Cloud/SaaS Vendors? Even some hardware vendors are starting to bundle services. How will this impact the profitability of the channel? Will most VARs and MSPs end up like frogs in boiling water?

The bottom line is that the channel seems to need more profitability and support. Vendors and distributors may need to find clever ways to offer more opportunities for them to make more profits and stop trying to bypass them. When more revenues are pumped into the channel, it becomes stronger. The channel also needs to get a lot smarter so they can stop selling on price and start delivering more value to their customer. If the channel gets better at what it does, then the businesses that they service will become more productive with technology. A strong channel is good for the IT Industry and economy!

Our work in building a bigger, better and stronger channel over the past years are opening up our eyes and minds to a deeper level of understanding like never before. As we continue to work with more VARs and MSPs in big projects like business assessments [See www.bestmanageditcompanies.com], we are getting even more insights into their DNA and challenges.

Some may simply say that these reluctant VARs and struggling MSPs are lazy or do not get it. I disagree as I think these VARs and MSPs are really doing what they can to grow their business in an increasingly complex channel and digital World. They just need some proper help. I like to think of the channel as the engine of the IT Industry. We all have to find ways to keep it purring.

I do not have all the answers, but I can tell you that we plan to leverage what we learn to help the channel to remain relevant and successful. Hopefully we can make a difference to prevent more channel partners from ending up like the frog.