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If You Build It, the Margins Will Come

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By Stuart Selbst

The industry is changing fast. We keep hearing that you must embrace the cloud and start selling cloud solutions to your clients today or you will get left behind. Didn’t we hear that about managed services just a few years ago?  And look, there are plenty of technology support firms making money without moving to the MSP model.

I make my living coaching and advising managed services providers on their businesses.  Does that mean I think the cloud is what MSP was to break-fix five years ago? Yes, it does. I officially state here and now that you need to embrace the cloud. I will also go out on a limb and say if you are going to find success in the cloud, you need to build it yourself.

I know that I will start to get a lot of flack from my friends who are cloud vendors for saying this.  But, let me explain my perspective. There are many vendors offering cloud solutions to resellers and MSPs. Some of these solutions are data backup, disaster recover, hosted mail, spam filtering and virtualized desktop. I have a lot of respect for many of the vendors out there such as Axcient, Intronis, Reflexion, Spam Soap and Intermedia.  I have used many of these in the past and present and I have done educational events for and referred business to all of them. However, these days I am advising my partners and potential partners to do it themselves. Why wouldn’t you rent a half of a cabinet in a data center and put a few servers in there, spin up some VMs and host the solutions yourself? The biggest excuse I hear is, “Stu, I can’t afford it." And I say, “How can you not?"

Let me give you a few examples of what my partners are currently doing in the cloud:

  1. Netology, LLC, an MSP Mentor North America Top 200 MSP based in Stamford, Conn., has revenues that exceed $2 million annually with 13 employees. James D’Agostino, CEO of Netology, has invested more than $250,000 in hardware in order to build a private cloud offering. Their hardware is hosted in two data centers. They are providing their clients with redundant disaster recovery, application and server hosting, and other solutions. Netology is also an Axcient and McAfee partner.  But, through their own offerings, they have seen their margins nearly triple.
  2. OneSource Technology in Derby, Kan., is an MSP with six employees. They have a very interesting cloud offering. OneSource hosts dedicated servers with my friends at Phoenix NAP, a boutique datacenter in Phoenix that has cloud offerings and a dedicated HaaS offering for MSPs. OneSource Technology offers an amazing hosted Kerio email solution to their clients. The offering, The Mail Guys, has more than 400 users on it and is growing each day. OneSource sells hosted mail for a fraction of what a company can buy it from Intermedia and their profit margins are astronomical.
  3. Kilpatrick IT Solutions in Merrimack, N.H., has revenues of more than $500,000 and five employees. They also work with Phoenix NAP as well as Artisan for server hosting. Kilpatrick is just getting into building out their cloud offerings similar to OneSource. Kilpatrick sees the benefit to their client in taking 100 percent ownership of the deliverable.

These are just three examples of different MSPs embracing the cloud in very different ways that are at various levels of the MSP business. What is really great about all three of these firms and how they sell the cloud is that they aren’t selling someone else’s product. They are offering a customized solution that they own. Paul Bush from OneSource Technology stated, “I'm currently thinking the cloud is an attitude or business framework instead of a thing. For example, when a client needed an anti-spam solution with different features, we chose to spin up a Barracuda virtual appliance at Phoenix NAP instead of purchasing one and hosting it at our office or the client's. The process was faster, less expensive and will be more reliable in the long-term than a physical solution." At the Fall Partner Meeting I held in Chicago, Kevin Kilpatrick from Kilpatrick IT Solutions said during our discussion about the cloud, “We aren’t reselling someone a network, we are their network." This is so true.

As I’ve been saying for years about managed services, it isn’t a product it’s a business model. The cloud takes that to the next step. It gives you much more stickiness with your clients and when you build your own cloud you increase your margins and make more profits.

I believe that the debate to build or resell will always be there. In my professional option, I would put my money on building a cloud offering on some level. This way you own it and are able to better support the client rather than reselling someone else’s product and hoping for margin and support.

Stuart Selbst is president of Stuart Selbst Consulting  which helps technology services firms attain success through focusing on customer service along with process and team development. He has worked with hundreds of firms globally who have all achieved different levels of success. Selbst has more than 20 years of technical experience having worked in large corporate IT departments and he holds multiple technical, engineering and security certifications.  He also is a member of the 2012-13 Channel Partners Advisory Board.

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