Transform a VAR Business to the Managed Services Model

Community Content

Nancy Hammervik

A successful IT industry entrepreneur once told me the transformation from a traditional reseller to a managed services provider is a lot like changing

the tires on a car while it’s rolling down the highway at full speed. It can be a harrowing experience, requiring a substantial amount of planning and a flexible skill-set to keep it all in balance – one bad move and it all could come crashing down. While that might seem like an over-the-top dramatization, each part of this process brings certain risk to the individuals and entities involved.

Of course, the payoff realized from a managed services conversion is significantly greater than the gratification received from changing a tire. The recurring revenue opportunities afforded an MSP will help improve its financial footing and give the management team more flexibility to expand its support programs as well as its technology portfolio.

But before providers can enjoy any of those benefits, they have to successfully transition many of their business processes, including some critical parts of their operations. Nearly half of all companies with more than $50 million in annual sales indicate that they have undergone a major business transformation, significantly shifting their revenue mix and product and services portfolios, within the last two years. The survey results from the 2012 CompTIA Trends in Managed Services Study show that more than half (59 percent) of all channel organizations have also undergone a moderate level of transformation during that time period, with another 24 percent categorizing their changes as “high.”

Sales and support changes are at the top of that list. Despite the assurances of some experts, the skills required to sell a single point product or service are significantly different than those needed to secure long-term, recurring contracts. Likewise, the support team must be properly equipped and trained to provide the proactive care prescribed in managed services agreements. As most MSPs quickly discover, a successful transition often requires significant changes in their processes as well as their personnel.

Unfortunately, some sales and support teams simply can’t or won’t adapt to the change. In many respects, it’s an apples-and-oranges comparison. Managed services require a greater collaborative effort from the providers’ sales and support personnel – it’s not a one-and-done proposition. MSPs must have skilled professionals on their team; those who can effectively communicate and generate ideas with their co-workers and business partners. Every prospective MSP should carefully consider whether their team members have the required qualities, or if they can find the people who do, before making the leap.

Of course, skills are just one of the hurdles to making a successful conversion to a recurring services model. Another significant obstacle new MSPs face is how to revise their sales incentives to address the organization’s strategic business shift. Almost 60 percent of managed services organizations pay their sales teams a commission based on periodic, recurring payments, while another 30 percent compensate them with a percentage of the total contract. The rest use a mix of both incentive programs, offering intermittent enticements to keep employees focused on improving customer satisfaction over the long-term and strengthening renewal opportunities.

Managed services compensation plans may require frequent modifications, especially during the transition phase if the company is making a more gradual shift to recurring revenue. MSPs should pay close attention to employee feedback and continually look for signs of dissatisfaction during the transformation. When companies are too slow to spot significant problems, such as higher-than-expected rates of attrition or significant issues with morale, it may be too late to make the proper adjustments.

While developing the most effective sales teams and compelling compensation plans are critical to managed services success, those are just two of the many challenges faced by prospective providers. Every company is bound to experience its own unique problems and opportunities during the conversion, and the answers to overcoming the obstacles often come from peers and industry experts. That’s one key reason so many have joined the CompTIA Managed Services Community. It gives members a forum to network with those dealing with similar issues and allows them to share and discuss best practice opportunities. When combined with CompTIA Channel Training sessions, it gives prospective managed services providers the resources and peer network they need to make a successful business model transition.

Click here to learn more about and get involved with the CompTIA Managed Services Community. Check back here to get highlights from the 2013 CompTIA Trends in Managed Services Study, coming soon.

Nancy Hammervik is senior vice president of industry relations at CompTIA.