If offering Managed Services were easy, then every office technology dealer would be offering it. But not so fast, it’s not all that easy. And not many dealers offer it yet despite the many pundits who are promoting Managed Services as a way to offset declining hardware sales and sinking page volumes.
The reality is Managed Services can’t be ignored. Consider the high profile organizations that are making an impact in this space such as Konica Minolta’s All Covered, GreatAmerica’s Collabrance, Ricoh’s CHAMPs, Muratec’s Leapfrog, and so many others. Add to those a host of consultants who can help a dealership get started and maybe there’s a way to make the transition easy after all.
With that in mind we spoke with a few people who know a thing or two about Managed Services. They discuss how to get started in Managed Services and whether or not buying an IT company is the easy answer.
David Pohlman, Office of the President/COO GreatAmerica Financial Services Corporation, who oversees the company’s Collabrance Managed Services program, views education as an elementary first step, particularly for understanding what this business is all about and what drives success.
“It’s an entirely different business from the office imaging world,” states Pohlman. “When people fail to do the education piece they tend to approach it in a way that ultimately doesn’t lead to success.”
After some basic education comes the business plan.
“Define the new direction, objectives, and a market strategy, which should expose your target [audience] and prospect profile,” says Charles Lamb, president & CEO Mps&it Sales Consulting, about creating a business plan.
Focusing on these areas will help define what the dealership wants to do and who they want to do it with, meaning what types of services will be offered and what types of customers will be targeted.
“It should also include a thorough consideration of what changes need to be made in their business to support a successful outcome,” adds Lamb. “And projections must be reasonable. Like changing the direction of a ship; sometimes it’s not instant, it has to work its way through.”
He recalls one dealer who told him that his dealership was going to sell $1 million more this year than the previous year. When Lamb asked him, “How are you going to do that?” the response was, “We’re going to sell Managed Services.”
That meant an additional $250,000 per quarter. Considering it was already the middle of January it was obvious to Lamb that the dealer had no plan and he wasn’t surprised when he asked him, “You already have some of that money, right?” The dealer’s response was, “No, not yet.”
“Now you kind of get my point,” says Lamb. “You have to define your objective and what is a successful transition, and if they’re starting out, what is success and ultimately who are you going to tell that value story to?”
Lamb also emphasizes the need to communicate this change in direction with your customers and prospects, particularly in the way the business is portrayed on its website.
“Your website can no longer be just a copier billboard, you’re going to have to provide confidence in everything you portray in the marketplace,” advises Lamb. “[It should show] that your technology skill set is five years ahead of the customers, that you’re pulling them forward, and there is a reasonable value for them to secure you.”
Dean Swenson, president of The Swenson Group has been taking advantage of Konica Minolta’s All Covered program for nearly two years now. His inspiration for doing so was the recurring opportunity in the IT Services market. For Swenson the initial steps involved understanding how Managed Services was going to fit into his existing business. The dealership created its business plan using data points from All Covered once he had a better idea of their average project revenue, what the recurring contract looked like, who was selling it, and how reps were paid.
“Admittedly, we knew nothing about how to start it and the All Covered Playbook came out a little while afterwards, which was a nice way to jump start it,” observes Swenson.
Even with the assistance of All Covered, a lot of the onus for long-term success is still on the dealer.
“We do a lot of the heavy lifting of the service delivery, but the dealer plays a critical role in the client relationship, the sales process, and the onsite response, so in order to get those plans together we’ll often have our local team sit down with them and talk through the overall advice we’d give them,” explains All Covered’s Nick Pegley. “We have a playbook—a how-to manual—that describes how to go to market, compensation plans, what the services are, and how the services will work operationally.”
For Britt Siedentopf, Managed Services Manager for Leapfrog Managed Services by Muratec, a critical first step is identifying the target customer. The second is building out a technology staff around that target customer.
He suggests targeting customers with 20-80 users in their IT environment.
“The reason is anywhere below 20 users, those customers tend not to value IT,” says Siedentopf. “Look for a prospect that values IT, wants things to work, wants out of the IT business, and wants to hand it off to the dealer.”
He acknowledges that narrowing the focus to certain types of customers is a difficult concept for some traditional office technology dealers. “In the world sales reps live in today, they see every business as a potential target customer,” notes Seidentopf. “That’s fine for selling a copier or a printer, but in Managed Services they need a laser-focused approach and must be able to say no to certain customers.”
Lamb also believes that employees need to be taught the difference between a strategic and tactical plan and understand who within the customer’s or prospect’s organization needs to hear those values.
“Our industry continually drives towards our front-line contacts, but that’s not how Managed Services excels,” he says.
Lamb recommends educating the sales team to avoid middle and low management positions.
“Outsourcing is almost always a C-level decision,” emphasizes Lamb. “CFO.com says 83 percent of companies mandate that their CEO or CFO be involved in contract decisions. If that’s what they’re expecting from their CFO there’s got to be someone who can get to that person.”
Part of that comes down to hiring the right people who can get in front of the right people.
“This isn’t something most copier sales reps can go out and sell,” says Siedentopf. “This is not a technical conversation with the customer. It’s a business conversation with a C-level. They have to have some business acumen so they become more of a customer’s virtual CTO.”
David Sobel, Director of Partner Community at Logic Now, offers another perspective on how to get started in Managed Services.
“What I recommend as a first step is to introduce a monitoring service because it is an effective and profitable way to add and learn the logistics of delivering Managed Services. Right now [the dealer] has a healthy relationship with their customer, they’re billing them for work they’re doing on an ad hoc basis, and generally most dealers are going to find, if you ask them, their customers are going to say nice things about them such as, ‘I like working with you, I don’t think I need any more service, everything runs fine, you’re doing a great job.’”
This approach allows the dealer to proactively anticipate issues and fix them before they become a problem. He suggests doing this on a simple fixed fee style engagement, particularly for SMB customers.
“All you’re going to do is alert the customer and call them when something happens and ask them if you want them to fix it or not,” states Sobel. “It’s still the break-fix relationship they’re used to and now they have much better telemetry.”
He adds that the cost of delivering a service is much lower and can deliver margins in the 80 percent range. This approach can also include anti-virus upgrades, backup monitoring, and asset management.
“Typically those environments have between 5-20 devices,” says Sobel. “Instead of trying to count the number of devices, sell it for a fixed fee, something like $199 a month. That’s kind of a magic price point, and people are willing to buy at $199 on an impulse, and it teaches them how to pay for things on a recurring basis.”
For larger customers with 100 devices or more, Sobel suggests selling the service for $299 or $399.
“Sell it at a price that’s appropriate to their need,” he suggests. “The point is to avoid any per device or per user charge because it’s easier to sell to them when there is no objection around variability. And as a growing MS provider I’ve given myself a base to learn the logistics of recurring revenue and how to make the predictions of cash flow around that because I start having a revenue stream.”
Buying an IT Company
Asked if buying an IT company is the solution, Lamb responds, “I wish it was. You have to ask yourself, if you’re buying an IT company based on transactional sales, are you really moving forward? My research shows that most IT companies are not selling long-term contracts. They’re selling mostly blocks of time at best with 12 month agreements. The fact is copier dealers are in a better position for driving long-term contracts. Buying a transactional IT company simply adds payroll without a promise of longer term revenue. If it doesn’t have contracts that are long term, you’re just rolling the dice.”
He recalls one dealer that rolled the dice and bought a small IT company that was month to month on almost everything. Ultimately those customers decided to go in another direction, leaving the dealer with the payroll, but not the account.
Others aren’t as dead set against an acquisition.
“That’s dependent on the dealership,” says Pohlman. “If you’re a good sized dealership with good financial capabilities, it all comes down to buying the right organization. You’re probably going to pay a premium, but you’re going to want to buy someone who’s operationally mature in this space and can demonstrate the ability of scale and to scale this business profitably.”
Siedentopf thinks dealers should consider other options first, although he has a caveat. “If they are already successful and understand the model of Managed IT services and how to deliver it and how to sell it, then if they go out and buy an IT company, they know what they’re looking for and the base they’re looking for.”
However, for those looking to get in for the first time, he doesn’t advocate acquisition.
“What will happen is they end up buying a company that may not be mature in Managed Services and the customers they’re buying may not be customers they want,” says Siedentopf.
“If you’re in a position to grow by acquisition, I’m not going to dissuade you,” adds Logic Now’s Sobel. “There’s a lot of legitimacy to the idea of doing that. The trick is it’s not just the matter of buying an IT company because not all are created equal; are you buying an IT company that understands how to deliver Managed Services? Do they offer Managed Services now, or are you buying a break-fix organization and just acquiring the technical skills? If they don’t understand the business of bringing in recurring revenue you haven’t actually solved the problem.”
Even though he’s headed down the right path with All Covered, Swenson still thinks about buying an IT company. “It’s kind of got to be the right fit at the right time,” he says. “If we have that opportunity it will bring additional talent in house, additional base, and hopefully complement the relationship we have with All Covered.”
You Got to Be in It…
Ultimately, Lamb considers Managed Services a must for the document imaging dealer.
“In today’s business culture, transitioning to services is mostly driven because they have to as much as they want to,” he says.
Swenson has never doubted that Managed Services was the right direction for The Swenson Group.
“If you’re going to grow your business and bring more value, you can’t sit on the sidelines. We can add more people and sell more copiers or we can diversify our portfolio. This is where we’re going and it’s a big chunk of our business model now and will be an even bigger chunk in the future.”
A Partnered Approach
It’s been a few years since Ricoh introduced its CHAMPS program, but it’s only been within the past 12 months that it’s truly taken off. “We had a lot of starts and stops, and it wasn’t really taking hold for a lot of different reasons,” acknowledges Jim Coriddi, vice president, Dealer Division, Ricoh USA.
Today, between 30-35 percent of Ricoh’s 436 dealers are taking advantage of the program.
One of those Ricoh dealers leveraging CHAMPS is Dawn Abbuhl, president, Repeat Business Systems, Inc. of Albany, NY and a member of Ricoh’s National Dealer Council.
The program has enabled her to jumpstart her Managed Services business by meeting requests for projects that prior to CHAMPS might have been too big for her company to handle or for when a certain level of expertise is needed that Repeat doesn’t have.
“We forward this to CHAMPS and they can put someone on that project or they send it back to me. All I have to do is add our margin to it and CHAMPS and myself present it to my customer,” says Abbuhl. “It’s great and has given us a depth we’ve probably never had.”
Even though Managed Services is not a path that every dealer needs to travel or is equipped to travel, some like Abbuhl have discovered that these services allow them to make themselves stickier with their customers while establishing themselves in their market as a certain type of provider.
“Dealers are telling us, ‘If we did not have this we would not have landed this deal,’” reports Coriddi. “That’s how we know it’s starting to take hold and that’s what’s grabbing the attention and the imagination of our dealers. We feel like we have a solid foundation and are starting to broaden the portfolio and broaden the view of how the customer looks at our dealer and that will ultimately result in growing the business.”