Sunday, May 13, 2012

The Virtual Peer Group is Introduced to the Cloud Alliance for Google Apps

During our most recent VPG session, we heard from a guest speaker, David Politas, who is the founder of the Cloud Alliance for Google Apps and also the CEO of BetterCloud. David introduced us to the Cloud Alliance – its mission, membership and value to Google Apps Resellers. The presentation provided us with a very good understanding of this timely initiative and also got us thinking about how to navigate through the hundreds of applications available in the Google Marketplace.

David raised some great points during his presentation. One of them was to point out that the success of early Google Apps resellers was enabled by their position as “first market movers”. Now that there are more than 4,000 Google Apps Resellers world-wide with the majority of them in North America, the first market mover advantage is a thing of the past. So how can a reseller differentiate from the competition? The obvious answer is by offering a broader array of cloud services and/or providing a deeper level of integration/customization/business value than other resellers – to offer real solutions based on a combination of services as opposed to reselling and installing off-the-shelf GAPPS licenses. So selecting the right complementary cloud services will be critical to building a differentiated value proposition upon which to base your CSP business.

Todd and I have always felt that the two most critical questions to address in building a successful CSP business are (1) what hosted services should be packaged into cloud solutions for your target customer set and (2) what business model will generate the highest level of recurring revenue at the highest margin based on those services.

So the Cloud Alliance is an initiative that is addressing the first of these key questions and it represents an important step in filtering the overwhelming number of choices from the Google Marketplace on behalf of the Google Reseller community. The second question is a fundamental goal of our Cloud Solutions Provider Program.

As I think about the two key questions posed above, I can list at least 10 criteria that could and should be applied to a cloud service under consideration for your own Cloud Solutions Ecosystem. See if you agree with my 10 criteria and feel free to comment or offer some additional criteria of your own.

10 Criteria for Selecting Apps for a Cloud Solutions Ecosystem:

1. How completely is the app integrated with the Google Apps suite?

As David pointed out in his presentation, some apps in the Google marketplace are very loosely integrated while others are much more tightly integrated. Building on Google Apps as a messaging and collaboration platform is far more compelling when there is total integration (data, operational, and functional) between the Google Apps suite and a complementary app from the marketplace.

2. Does the app have the right features & functions?

Clearly you will want to evaluate a potential new service offering from the standpoint of its functionality. You want to hitch your wagon to a technology that will offer the most complete feature set in order to support a diverse set of requirements from your customers and avoid losing deals to a competitive offering that has more or better capabilities.

3. Is the solution customizable?

In order to enhance business value and to separate yourself from competitors, you are not interested in simply selling or referring off-the-shelf apps. You want to look for apps that can be customized to address the specific needs of your target customers. Is the app customizable? What technical expertise does this require? What customer problems can you solve - and what business value can you create – as a result of this customization?

4. Does the ISV and the app have brand recognition?

Perhaps this is not the most critical of the top 10 criteria, but as you establish your own brand identity in the marketplace, it can be helpful to hitch your wagon to the brand awareness of a very popular app. It can also be important to your current and future customers to view your ecosystem as a best-in-class portfolio of services containing established and recognized leaders in a variety of technologies and applications. Your ecosystem is a direct reflection of you company, representing the choices you have made on behalf of your customers to provide them with the best cloud-based IT service platform to run their business.

5. What is the cost of the solution?

The cost of the app is an important criterion because it is a direct source of revenue and margin for you and it also directly influences your customer’s buying decision. The price points for apps available in the Google market place vary significantly from virtually free to well over $100 per user per month. In the CRM space for example, is $65 to $125 per user per month while Insightly is under $10 per user per month and the first 3 users are free. And, of course, these two ISVs have their own pros and cons with regard to feature/function, brand identity, ease of use and the level of Google Apps integration.

6. What is the end-user market focus?

At the core of understanding and positioning the value of every app in the marketplace is the end user market focus. Ask yourself what problem the app is trying to solve and who typically has this problem? Is it a business or consumer focused solution? If it’s truly a business-class application, does this sound like your target customer? Make sure there is a direct match so that each new app added to your own ecosystem complements other apps and contributes to the synergy of your total cloud solutions portfolio.

7. What is the ISV’s commitment to the channel?

The Google Marketplace tends to be a superstore of apps for anyone who wants to shop there – both customers and resellers. As a result, it can be hard to distinguish between ISVs and their applications from a “wholesale” versus “retail” perspective. As a CSP, you want ISV partners who are committed to building their business via the indirect channel and not simply a source of referrals for expanding their direct business. An ISV committed to the channel will have a reseller program with training, support, sales enablement tools and help in marketing the app or generating new leads. You want a business partner, not a vendor relationship.

8.  What is the revenue sharing model?

David Politas did a nice job of explaining the ways ISVs approach the concept of revenue sharing with Google Apps Resellers: Referrals, in which resellers are informally compensated for referring clients to ISVs, Commission-based, in which the reseller is paid a commission for selling the product, but the ISV handles the billing and shares in ownership of the customer relationship, and Wholesale, in which the ISV sells the product to the reseller at a specified price and the reseller sells the product at a markup to clients while assuming responsibility most, if not all, of the customer relationship (e.g. billing, first line support, etc.). Each model has different implications for your revenue and margin potential, cost of service delivery and customer loyalty.

9. What is the revenue enablement potential?

The revenue enablement potential is the incremental revenue value of an app beyond the direct licensing business. In other words, what value added services can you wrap around the app to generate more business? As stated above, if the app is customizable, then you can charge more for tailoring the app to meet the business needs of your customer and charge a greater deployment fee up-front. If the app is customized, then you are the best choice for providing ongoing services like help desk support or cross selling other hosted services, like backup and recovery for the application database or single sign-on for enhanced application security. Look for apps that maximize the incremental revenue potential.

10. Does the technology fit your business & delivery model?

Last, but not least, be sure that you clearly understand how you will deliver and support this app as you scale your CSP business. Do you have the resources to integrate, customize and support the app to realize its full revenue potential? What will be the true cost of service delivery to your business and what level of gross margin will a typical deal generate based on service fees you generate and service costs you incur for a typical customer engagement. This is where the modeling tools in the CSP Service Pricing Blueprint will come in handy.

A Structured Approach to Building Your Ecosystem 

Clearly not every app you add to your ecosystem will require this level of analysis and due diligence, but for those apps that will become your core services, these are the criteria that will drive the best choices for establishing and expanding your own cloud solutions ecosystem. The Cloud Alliance is an important step towards using a structured approach for maximizing the business value of your service portfolio. As a group, lets try to further refine this structured approach and use it for the most appropriate apps to add to your Cloud Solutions Provider business.

Tuesday, May 8, 2012

What are the most effective lead generation programs?

In a recent meeting of our Virtual Peer Group we discussed the effectiveness of a broad spectrum of lead generation programs including:
  • Webinars & ground seminars 
  • Outbound telemarketing 
  • Event marketing (exhibits, conferences) 
  • Email marketing (news letters, promotional offers) 
  • Internet Marketing (SEO, PPC, Banner ads, etc.) 
  • Social Media Marketing 
  • Referral Programs 
We compared and contrasted the pros and cons for each type of lead gen program and talked about the value of combining them into an integrated marketing program. We also talked about the importance of basing your lead gen program on compelling content that includes your well-defined value proposition and how well it is tailored to your the business issues that are most important to your target market. 

Your value proposition must be (a) differentiated, (b) address the top problems/concerns of your target customer set, (c) articulate cloud solutions that address those problems, and (d) demonstrate the business value that you deliver to your customers. Then we talked about the importance of the “call-to-action” as a key ingredient that will convert the interest created by your compelling content into action taken by your prospects.

We concluded the session with a discussion of metrics that measure lead gen effectiveness with a focus on conversion rates and their role in setting targets for lead gen volume, their impact on pipeline activity and revenue value as well as their impact on the cost per lead and the cost of customer acquisition. There is a lead gen effectiveness measurement template in the CSP Program’s Performance Management Blueprint.

Here are some questions to consider for your own lead gen initiatives:

1. Which lead gen programs have been most effective for you?
2. What are their response rates? Qualification rates? Average cost per lead?
3. What percentage of your leads covert to your sales opportunity pipeline?
4. Do you have a well-defined value proposition that meets the above criteria? 
5. Do your lead gen programs articulate that value proposition? What is your call-to-action?

Making the Transformation to Monthly Recurring Revenue

I thought I would share an interesting topic held during one of our Virtual Peer Group sessions. We discussed the opportunities and challenges associated with making a transformation to a Monthly Recurring Revenue (MRR) business. There are significant business benefits associated with the MRR model including:

  • Higher total revenue and margin for the average customer engagement
  • Consistent revenue levels and a predictable long term revenue stream 
  • Higher valuation for your business during a future M&A event

The MRR model is also attractive to your customers and prospects as it removes the heavy up-front cost of IT deployment and replaces it with an affordable monthly operating expense that can be budgeted on a per employee basis. Market acceptance for the MRR pricing model has been well-established by the MSP community and is the perfect approach for CSPs as they introduce managed cloud services as an alternative to premise-based IT services.

We then compared the revenue value of a typical 25 employee deal and found that just during the first year of a managed services contract, a recurring revenue deal generated 2 to 4 times the revenue value when compared to a project based deal.

So having established the many benefits of recurring revenue, we turned our attention to some strategies for how to move from $50/user/year to $50/user/month. In general terms, the strategy is to wrap chargeable services around Google Apps, then add more cloud services using the same service wrap-around strategy, then layer premium offerings such as virtual CIO services on top of your service portfolio and finally, use these enhanced solutions, and a highly efficient sales process, to accelerate customer acquisition.

To go a bit deeper, we looked at some of the tools found in the Go-To-Market blueprint, including examples of chargeable one-time and recurring services. We also looked at a comprehensive 3-year revenue model that projects total accumulated revenue and margin against the cost of service delivery and cost of customer acquisition. We concluded the session with some ideas for how to survive the first year of the recurring revenue transformation where maintaining positive cash flow to fund the business during the early phase of the revenue ramp can be a challenge.

Here are some questions we considered as the group:

1. Are you considering making this transformation?
2. Have you already begun this transition?
3. What are your biggest concerns?
4. Where do you need the most help?
5. How can the VPG community or MSPexcellence provide assistance?

If you are not a VPG member and would like to get a sense for one of our VPG meetings, we have posted a recording of this session here.

Essential Tools for the CSP Sales Process

Our second VPG session was devoted to a discussion of the sales enablement tools included with the Sales Process Blueprint. The Sales Process Blueprint is the third blueprint in a four-part lifecycle of Cloud Service Provider Blueprints provided by the CSP program and it guides the CSP through managing an efficient, scalable and repeatable solutions sales process.

During our session, we talked about the ideal structure for the solutions sales process breaking down the key objectives for a solutions sales rep to accomplish before holding the first appointment, then what to focus on during the first and/or second appointment and finally how to close the deal during the second and/or third appointment.

Prior to the First Appointment:
  • Preliminary qualification (use a standard lead qualification process) 
  • Pain level, solution fit, business value, decision process & timeframe 
  • Sales Tools:   Sales Guide, Quick Reference, Lead Qualification Scorecard 
During the First or Second Appointment
  • Establish your value proposition and build trust 
  • Fill in the gaps from the preliminary qualification process
  • Begin the discovery process & needs analysis tied to business benefits
  • Identify decision makers and understand the approval process 
  • Sales Tools:  Sales Presentation, Lead Qualif. Scorecard, Quick Reference 
During the Second or Third Appointment
  • Present your quotation, the cloud solutions their business benefits 
  • Prepare/deliver ROI analysis if appropriate 
  • Schedule a proof of concept if necessary and only with success criteria 
  • Identify all open issues, finalize pricing & contract terms, close the deal 
  • Sales Tools:  Quotation Builder, ROI Calculator 

After this overview of the sales process, we had a discussion with some VPG members about the importance of qualifying prospects, gearing your discovery questions to ferret out customer needs based on your cloud solutions (e.g., understanding the risk of accidental data loss assuming that you can address this concern with a cloud backup service) and defining the business value your solutions will deliver (e.g., save money, make money, reduce risk, improve productivity, etc.).

We concluded the session with a brief introduction to the sales tools contained in the Sales Process Blueprint including a standard cloud solutions sales presentation, a quick reference guide, a lead qualification scorecard, a quotation builder and an ROI calculator. The group was encourage to review the tools and ask us for help if you have any questions on how and when to use them or suggestions for how to improve them.

Here are some discussion topics taken up by the group:

1. Do you have a standard lead qualification process?
2. What do you think are the most important discovery questions to ask?
3. Where does your sales process encounter the most resistance?
4. What are the most valuable sales tools that you have or would like to see?
5. Do conduct formal sales training for your reps and sales agents?

The Benefits of Google Apps Scripts

One topic from the technology track of our recently launched Virtual Peer Group sessions focused on the benefits of using Google Apps Scripts to automate workflow and create more customized and differentiated cloud solutions for your customers. I see two major forms of benefit this technology has to offer – one is the customer benefit and the other is the CSP benefit.

As for customer benefit, Google scripts can be used to automate workflow and business processes. This creates greater efficiency when utilizing off-the-shelf apps for discrete business applications - simplifying the user interface by reducing repetitive tasks and consolidating complex processes into a single key click has to increase employee productivity and satisfaction while reducing end-user support. Using scripts, data can be validated and integrated with other back-end, data-driven applications such as the company's CRM. This customized overlay can be branded to represent the customer's unique business focus. Here is an example I found online today...

As for CSP benefit, scripts go to the heart of turning generic apps into customer solutions. This will differentiate your business from your competitors in a big way. More importantly, they can represent a new revenue stream for your cloud solutions business. Custom script development can be a source of one-time consulting revenues as well as a source of ongoing recurring revenue (especially if you productize the app and re-market it to other customers).

Finally, customized cloud solutions will make your relationship with the customer "sticky". And once you start the recurring revenue wheel spinning, you never want it to stop. Some of the questions we will continue to explore as a group are:

1. What are the compelling applications for Google Apps Scripts?
2. Where to find the resources necessary for the CSP to develop them?
3. How to most effectively monetize the result - as either one-time or recurring revenue solutions?

Friday, January 27, 2012

Are you ready for a channels-based cloud business?

5 key questions to consider before you leap into building a channel-based Go-To-Market program for your cloud solutions

1.  Are you ready to commit to an indirect channel?

Creating, managing and making a channels program successful is not a part-time job, nor is it for the faint of heart. Either you are committed or you’re not. It’s also not a short term experience delivering short term results. However, the end results of a properly executed channel program can be a scalable, high volume, market share expanding sales machine that can reduce your cost of customer acquisition and dramatically increase the value of your company. Far too many times we’ve seen tech companies saying “Yes, of course we are committed to the channel” only to find out that when the deal flow doesn’t grow as fast as they would like and cash gets tight, guess what happens? They start taking deals from their trusted partners. And the next thing you know they are blacklisted by the channel – the kiss of death.  The first commandment of indirect sales is “Thou shalt not compete with one’s own channel”.  Are you ready to fully commit to the channel?

Rate yourself on a scale from 1-5 (5 being highest)    ________

2.  Do you have a compelling channel-directed value proposition?

What does this mean? Do you have a channels program that includes a saleable and viable end user solution, with proven sales success and with the tools required to help the partner replicate your success?  Do you have a revenue sharing plan and profitability model that shows a potential partner how they can make a business out of your cloud solution? Approach this like you are providing them with a franchise opportunity.  Really adopt the mindset that you are the franchisor and your partner is the franchisee.  Provide them a repeatable success formula that is proven to be effective.  Do you have a compelling channel-friendly value proposition?

Rate yourself on a scale from 1-5 (5 being highest)    ________

3.  Do you have a compelling end-user value proposition?

Is your end-user value proposition based on a deep dive technology sell or is it based on creating business value?  Are you the only one in your company who can really close sales?  Or have you been able to craft and capture your message in a way that any intelligent sales person can deliver?  If your value proposition requires a rocket scientist to deliver, then get ready for a long and costly sales process in the channel. Instead, make sure that you have a nicely defined, well positioned, ROI-driven end-user value proposition that a channel partner can use to find prospects, engage in a sales process and close deals at a reasonable rate. Do you have a compelling end-user value proposition?

Rate yourself on a scale from 1-5 (5 being highest)    ________

4.  Are you ready, willing and able to make the channel successful?

Do you have the proper support system in place to enable a successful program?  A support system includes sales and marketing tools, a sales management and review process and resources to provide assistance before, during and after the sale.  A channel support system is not something you create on the fly.  It requires careful preparation before you ever launch the program. All too often we see technology companies put enormous development effort into their technology solutions and their direct sales model but when it comes time to launch a channel program, they fail.  They fail because they are expecting the channel to be self-sufficient. Enabling an indirect channel is no different than a franchisor enabling their franchisees to succeed. Are you ready, willing and able to make the channel successful?

Rate yourself on a scale from 1-5 (5 being highest)    ________

5.  Do you have enough patience for a channel program?

Do you truly understand the significant value a well-executed channel program can bring to your company and the ability for this program to significantly increase the cash valuation of your business? If so, then have patience, and lots of it. It will take much longer than you expect for your channel program to reach its full potential. You must be prepared for all of the hard work and time required to execute a channel program with “excellence”.  The first year will be a major investment of time and energy with few tangible results in the form of revenue from productive partners. The second year will bring some results, but certainly not the big payoff you were expecting. However, by the third year, you can find yourself sitting on a hugely profitable business that has far more scalability than a direct-only sales model.   Do you have enough patience for a channel program?

Rate yourself on a scale from 1-5 (5 being highest)    ________

What is your total score? ________
In which of the 5 areas are you strongest?
In which of the 5 areas are you weakest and need help?

Wednesday, January 25, 2012

How to Add Cloud Services to Your MSP Business

In our last post, we talked about how the cloud is changing the MSP landscape and how the Cloud Solutions Provider (CSP) has emerged as a new and improved version of todays Managed Services Provider.  We think, over time, this evolution is inevitable for all MSP’s.  While it may take many months or even years to unfold, ultimately the CSP will dominate the service provider landscape just as the cloud will dominate the IT landscape. If that’s true, then the question becomes:  How will the MSP add cloud services to their current business model?
It’s a complicated question and like most complex problems, there are many ways to solve it. Lets break it down in two ways – let’s consider the major categories of hosted cloud services available along with the different deployment models for bringing them to market. For service categories, we see six major trends driving companies from the SMB to the large enterprise toward the cloud. They are:  pay-as-you-go virtual infrastructure (IaaS), hosted applications (SaaS), cloud-based collaboration services (Google apps and Office 365), mobility solutions (for tablets, smart phones or netbooks), availability and security services (from virus protection to data backup and recovery) and last, but not least, a support model that manages the end-user experience.  These six service categories are represented in the illustration below:
Now let’s look at the deployment options.  If you are an MSP delivering managed services for premise-based devices and their users, you basically have three approaches available for evolving your business into a CSP model.  They are all variations on the “make versus buy” theme.  One approach is to build your own data center and operate a facility that offers virtual IT infrastructure and provides hosted services in one or all of the six categories described above. This is the most expensive route to take and the longest path to profitability. However, it does have the advantage that you control all costs and eliminate the middleman that goes along with reselling a white-labeled hosted service.  That being said, in the age where low cost services are readily available from major players like Amazon, Rackspace, Microsoft, Google and others, this path is rarely taken except by large, established and well-financed MSPs.  
The second approach for adding cloud services to an MSP business is to assemble your cloud solutions by selecting best-in-class services hosted by 3rd party providers and wrapping your own added value services around then. This model is sometimes described by using words like “broker”, “aggregator” or “integrator” and there are different levels of value the MSP can provide when performing one of these roles.  We like the simple concept that 3rd party hosted services are like the engine of a car while your managed services provide the frame and body of the vehicle combined with your help in driving that vehicle in the right direction.  In other words, you turn cloud services and technologies into cloud solutions that create customer value. 
The third approach is to outsource the entire cloud services delivery and support function to an existing Cloud Solutions Provider and become their customer acquisition engine. This approach may make sense for companies that are not full-service MSPs, like VARs and Interconnects for example. If you are new to recurring revenue, have few resources available to manage service delivery and support and want an instant cloud solution to offer, then consider reselling an existing full service offering from an established provider.
We think many MSPs will opt for the second approach – assembling a solution based on 3rd party hosted services and wrapping managed services around them. Like any strategic initiative this evolution will take some thought and preparation to get it right. In fact, we recommend building an ecosystem of partners who offer services that are carefully selected based on well-defined criteria for creating high value solutions your target customers will buy. Then you can price and package your integrated solutions based on customer value and not as a commodity service. We have been doing a fair amount of project work for clients in this area and will be sharing some insights on how to do this in future blog posts. Stay tuned.
Next:  How to build your own cloud solutions ecosystem 

Wednesday, January 18, 2012

How the Cloud is Changing the MSP Landscape

According to market research firm IDC, worldwide revenue from public IT cloud services exceeded $16 billion in 2009 and is forecast to reach $55.5 billion in 2014, representing a compound annual growth rate of 27.4%. Industry watchers and major players are predicting the next wave of cloud adoption will take place in the SMB segment, the primary market for managed service providers. At MSPexcellence, our focus is on helping MSPs grow a recurring revenue business with efficient sales and marketing strategies and, from our vantage point, we see the cloud changing the MSP landscape in a big way.
We’ve seen it before . . .10 to 15 years ago IT services in mid-sized companies of 50 to 500 employees were provided by internal systems supported by a small and over-worked IT staff that was, at best, reactive to the needs of the business. These companies purchased their data systems from VARs, their phone systems from interconnects and they augmented their internal IT staff with break-fix support and professional services for maintaining their hardware and software. It was a heavy capital investment for systems and a heavy operating expense for labor. Let’s call this phase “IT version 1.0”.
Then an evolution happened called managed services.  IT service delivery became far more efficient (and less expensive) when outsourced to an MSP. The MSP was able to achieve greater efficiency with the help of a disruptive technology called the remote monitoring and management (RMM) platform and it allowed them to spread their superior expertise across a very large community of companies and end-users.  The MSP model took hold in the industry because it was a win-win for customers (big OPEX savings) and service providers (long-term recurring revenue). Let’s call this phase “IT version 2.0”.

And now there is an even more revolutionary evolution taking hold . . . the impact of the cloud on the MSP landscape.  Just like RMM, the cloud is a disruptive technology ushering in a new evolutionary phase of IT service delivery, only this time the change will be even more profound. Let’s call this phase “IT version 3.0”.  This phase represents the era of cloud services and the dominance of a new kind of IT service provider - the Cloud Solutions Provider (CSP).  

The CSP will deliver integrated cloud services and managed services, a best of both worlds “solutions” approach to IT.  Cloud services will dramatically reduce capital expenses for cash conscious mid-sized businesses, a huge advantage over premise-based IT services. Additionally, as premise-based systems become centralized and virtualized, the support burden will be further reduced and the concept of the truck roll will effectively disappear - all leading to even lower operating expenses. With this new and powerful value proposition, the CSP will be able to attract new business and displace traditional MSP competitors.
However, there is still one problem with this shift in the landscape. How does the CSP make money?  That’s the key question for 2012 and you can bet every MSP is thinking this through very carefully. Virtual data centers are prohibitively expensive to build and operate and reselling commodity cloud services seems to offer little value while diminishing the role of the MSP. We have been thinking about this question too.  In fact, we have been doing more than just thinking about it. We've been working with MSPs to help them develop and execute a CSP business plan. This is not a simple process and there are a lot of moving parts, but we can tell you this:  the CSP model will survive and thrive in the era of the cloud.
However, this evolution will require the MSP to think differently about their business by blending their in-house managed services with out-sourced hosted cloud services.  It will require them to think in terms of integrated customer solutions and how they can deliver the greatest customer value with a blend of cloud and premise technologies. It will redefine their role as a trusted IT advisor to include cloud migration and integration expertise. And it will require business planning tools, where pricing, profitability targets and cost of service elements can be plugged into a model and applied to customer scenarios – scenarios that represent a repeatable sales formula for predictable revenue and margin results.  We will be blogging about all of these topics in the days and weeks ahead so check back often; as always, we welcome your feedback.
NEXT:  How to Add Cloud Services to your MSP business