Squeezing pyramids…

I’ve been participating in a lively debate over on MSPMentor (www.mspmentor.net) regarding a philosophy about pricing, the value of services and most importantly clients.

My position on seeking out the right clients is that in order to maintain the highest level of profitability, we should seek technology-strategic and technology-dependent clients. Technology-strategic clients are those who view technology spending as strategic investments in their organizations to give them a competitive advantage in their markets, and technology-dependent clients, while not being quite as strategic, depend on technology so heavily to run their businesses that they realize they must invest in technology.

These clients appreciate being introduced to new solutions that will increase efficiencies and productivity, alleviate business pain and risk, and improve their bottom line. They also actively work towards building a long-lasting relationship with their Trusted Advisor, whom they see as a business partner with their best interests in mind, as opposed to just another vendor.

These clients are also most likely to maintain budgets for technology, or are open to creating them, and allowing their Trusted Advisor to guide them through spending it wisely, secure in the fact that they will make better decisions with an experienced resource to lead them.

It took us a while to transform our break-fix customer base to "A" and "B" Managed Services clients back in 2005, as we had a pyramid of customers that looked like this:

   

                                                    

We had lots of clients paying us a small amount of money making up the bottom third – the widest part of the pyramid. In the middle third of the pyramid we had a much smaller amount of clients paying us more money than the bottom third. Finally, the top third of the pyramid was comprised of a very small amount of clients paying us the most money.

Our philosophy during and after transitioning to Managed Services and selling on value was to release the clients in the bottom third of the pyramid as we actively signed new "A" clients in the top third of the pyramid, replacing their revenue. We then were left with a lesser overall number of clients; but these were now "A" and "B" clients, who payed us more money, and were much, much easier to support and sell additional services and solutions to.

We had now "squeezed" our pyramid from the bottom and forced more "B" clients up into the top half of this new pyramid by building closer relationships with them (no third tier anymore) and growing it with the existing and newly signed "A" clients. We battled commoditization by only selling our services on value – as true consultative Trusted Advisor.

We made a conscious decision to work with only "A" and "B" clients (whom we worked aggressively with to promote to "A" client status), and deliver only managed and professional services moving forward – the result was no "break-fix" customers anymore, and we did not provide service to anyone that was not on a Managed Services Agreement. We were now very selective in our choice of clients, as our primary internal goal was maximum profitability. So our clients had to share similar philosophies regarding our business relationships with them, and take an active role in maintaining and growing it – after all, if we were experiencing maximum profitability, so were they, as that meant that their networks were running like well-oiled machines, and they were consuming new solutions to improve their business outcomes as quickly as we could identify and implement them.

This was another key point in our transition to a Managed Services Provider/Trusted Advisor – we deliberately changed our mindset from being focused on Operational and Project Outcomes to focusing strictly on Business Outcomes for our clients, moving from delivering technology to delivering business solutions. Here’s a graphic from Everything Channel that illustrates this concept perfectly:


*ChannelVision 2008

As you can see, the gap between IT Reseller and IT Integrator is delivery of solutions instead of just products, and the gap between the IT Integrator and the Business Integrator is the focus on business outcomes instead of project outcomes. A key differentiator between the Business Integrator and the other groups is that this role, embodied by a true Trusted Advisor, pairs business acumen along with technical acumen in order to provide the most value to their clients.

The ability to squeeze your pyramid is directly related to your internal, as well as your clients’ perception of your role and responsibility to them. A reactive break-fix service provider may never be able to squeeze their pyramid, based upon the bullet points illustrated in the previous graphic. The professional service provider stands a better chance, while the Trusted Advisor/MSP will be the least challenged and most profitable of all groups in this respect.

How far can you squeeze your pyramid?

Erick Simpson
MSP University
www.mspu.us

Posted in: General Business

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Get Dell’s MSP Channel Perspective Direct Tomorrow

Join our good friend Stuart Crawford tomorrow, Friday July 25, as he hosts Greg Davis, the DELL Channel Boss on Small Business IT Radio. Hear the show live at Noon Eastern. It will also be available via download afterwards.

Join here: http://www.smallbusinessitradio.com


Stuart Crawford

Regular readers of my blog know my perspective on Dell’s MSP Channel Strategy, but please do not solely rely on my opinion – tune in tomorrow to evaluate Greg Davis’ responses to Stuart’s questions for yourself, then post your comments back here so we can get your perspective…

P.S. – also check out Stuart’s new e-book – you can get it absolutely FREE:

Hot off the presses: http://blog.itsuccessmentor.com/connect-the-dots

IT Services in today’s global economy are in a constant state of change, driven by changes in the economy with raising full costs, demands in flexibility from employees and the always on world that we live in today.

The changing landscape is now forcing IT Specialists to look at new ways of doing business, call it the next version of Managed Services if you wish, however it is much deeper than just managed services.  IT Professionals must now look at new focus areas, new business areas and let off the gas pedal on the network and data.  Our client’s requirements with IT go much deeper than just setting up servers, workstations and then monitoring them with the latest managed services tool.

Connecting the Dots to Success – a guide to success in the second half of 2008 for IT Professionals.

The landscape is changing in the IT community, gone are the days of setting up servers and workstations and letting the client go and hoped they called you for support. Well, they did, just at the wrong time, usually when you are fighting another fire at another clients.

How do you reach true success with that model? Well you don’t.

My new eBook on “Connecting the Dots to Success” is about clearing up the IT Services roadmap so that we all succeed in 2008. New online solutions and technologies are changing the landscape, are you ready to succeed. What does your formula look like?

Get this free eBook online today at http://blog.itsuccessmentor.com/connect-the-dots

Erick Simpson
MSP University
www.mspu.us

Posted in: Industry Trends

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