It's Time for Cloud Services Brokers to Put the Pedal to the Metal
By Dave Zwicker
In this first post to the Cloud Services Brokerage Business Blog, I would like to set the stage for the future topics, which will focus on the most pressing business issues confronting cloud service brokers (CSBs) as they build their businesses in 2014. In the weeks and months ahead, I will be raising key questions and presenting many insights acquired from my role as co-organizer, content manager and community builder for CSBcommunity, an online business resource center for CSBs devoted to cost-effective customer acquisition and other business-building strategies.
The market is in full swing and competition is heating up. Channel partners of all kinds are entering the race from traditional data VARs and MSPs to Google resellers and consultants to telecom carriers, telephony VARs and agents — not to mention the born-in-the-cloud channel partners who have no legacy business to think about.
According to market research firm AMI-Partners, there are more than 277,000 channel partners globally who sell to SMB customers (1-999 employees). Most of them will want to enter the race to the cloud in some way, shape or form, but not everyone will succeed.
My business partner and I are in the business of helping all types of channel partners to create, scale or transform to a successful CSB business model. To that end, we focus on 3 Critical Success Factors that also map to the most important functional areas in any business.
- Business and Finance: Create long-term growth plan that projects your recurring revenue and profitability over time
- Technologies and Services: Understand the customer value and deal economics of the cloud solutions that will get you there
- Sales and Marketing: Build a lean sales and marketing engine and measure its efficiency with standardized funnel metrics
If you have not fully embraced these critical success factors, it’s time. They force you to think about fundamental business model questions and their inter-relationships. And with the help of some modeling tools, you can readily see how the answer to one question can impact another two.
This illustration shows that in order for your growth plan to project where your business is going (how monthly recurring revenue and margin build over time) you will need to know your deal economics (the blend of services and the average value of deals added to the business) and you will need to measure your funnel metrics (how many leads are needed to drive deal volume and at what cost of acquisition).
For example, let’s assume that you would like your cloud services business to grow to $1 million in recurring revenue in three years. After you put your assumptions into a growth model, you learn that to get there you will need to acquire one deal per month with an average monthly recurring revenue (MRR) value of more than $3,000. Unfortunately, your current average deal size is lower than this ... or perhaps your deal acquisition rate is lower than this ... or both. To address this issue, you need to increase your deal size by adding more services. Or your existing services may need to be re-priced to make them more competitive. Or perhaps they need to be re-priced to improve operating margins to more quickly recover the customer acquisition cost.
Now that you have squared up the unit values for an average deal with the assumptions used in your growth model, you need to understand what kind of sales funnel has to be created to drive this rate of growth. By modeling your sales funnel, you can determine how many leads your sales and marketing engine must generate and what conversion rates you will need to maintain to keep the engine performing at maximum efficiency.
More on these success factors in future posts. For now, the most important message I would like to leave you with is this: Success in the era of the cloud will come to channel partners who act aggressively to lead the market as opposed to sitting back and being followers. That means being ready to adapt to the new market environment and making the necessary changes to your business. Follow the 3 Critical Success Factors outlined above and you will manage that change in a controlled and predictable manner as you reap the rewards of the new cloud economy.
Dave Zwicker co-founded CSBcommunity.com, an online business-building center for cloud service brokers (CSBs). The CSBcommunity.com website is operated by CSBexcellence, a consultancy also co-founded by Zwicker, which offers an inbound marketing tool kit for CSBs. The CSBexcellence team guides channel partners through a structured methodology for creating a scalable and profitable CSB business and implementing a “lean" inbound marketing engine for fueling the sales funnel and driving business growth. During a successful marketing career spanning three decades, Zwicker has held executive assignments with leading technology companies offering voice/data systems, security solutions, application performance management software and managed voice services.