If you are a company involved in any way with reselling products and you are thinking about or delivering managed services, this is an article you should read. As a new block of VARs seeks to enter the managed services profession, you can expect to see some familiar issues related to the transition between these two distinct business models.
Where are the VARs Coming From?
For those of you who remember the great VAR migration of the early 2000s, you will recall the often frantic and mixed levels of success depending on how the VARs transitioned into a recurring revenue MSP business model. I would characterize those companies as being mostly smaller in size compared to what we see today.
Today, a majority of the recent entrants to the managed services profession are coming from larger value-added resellers (VAR). One of the reasons why we see this migration is the larger VARs who were insulated from the commodity pressures facing smaller organizations in the early 2000s now realize the mortality of the pure reseller business model. Put differently; these bigger VARs didn’t feel the same pain as smaller VARs did. Therefore, they were able to withstand the market pressures a bit longer than other reactive IT companies. The
I say mortality not to suggest that all forms of reselling hardware and software are bad or even going away. Instead, companies who derive a significant amount of revenue on reselling do face an existential decision as the lucrative business model of managed services with its recurring revenue continues to lure companies into the promised land of MSPs.
What is Easy and What is Hard
This brings us to the crux of the issue: the closer your reseller operations and salespeople are to your managed services teams the more potential for corruption and breakdown of the process. Here is my explanation for why this happens.
- Product salespeople more easily revert to bad habits and want to sell hardware. This is often because the sales cycle for products is easier to track compared to selling managed services.
- Commissions on products are easier to define and communicate to sales teams, hence why they gravitate towards products they can quickly sell and calculate commissions.
- It takes a very disciplined sales person to silo both managed services and hardware. What this means is even if your sales team is allowed to sell both hardware and managed services, deals involving a possibility of both styles being sold will provide irresistible pressure to the salesperson to sell a product, which is a faster sale, easier to close, and produces a faster commission.
All this is to say; experience teaches us that the further apart you keep your managed services and VAR sides of the business, the better off you will be. I would even go as far as to suggest having different sales teams for each business model, to ensure no risk of intermingling.