All Things Managed: The IT Services Story Part 1
To Acquire, to Build, to Partner?
Traditional office equipment dealers that are serious about growing their business are always looking for new customers, new products, new services—new revenue streams, in short. Managed IT has been a thing in the document imaging industry for a while now, and although countless dealers have not only embraced but also been successful with it, IT can still be a pain point for others. With the help of the Technology Assurance Group’s Brian Suerth and Dale Stein, we present a series that will dive into many aspects, facets, and properties of managed IT. Welcome!
It’s long been established that there are three methods for entering the managed IT space: acquire, build, partner. Each has its advantages and limitations, yes—what might be right for one dealer might not be right for the next. And with that…
“Regardless of industry, when you make an acquisition you have to be sure that the culture of the two companies match,” said Dale Stein, Co-Founder of TAG. “IT organizations have technically centric and analytical people who process information differently than a typical office employee. Before a dealer marries the IT firm with its salesforce, it needs the values of both entities to be aligned so everybody is comfortable with the transaction and the direction forward.”
The size of the IT organization presents both challenges and opportunities, depending on the size of the dealer. For instance, the average scaled IT firm has roughly 100 accounts. So, the goal is to take an IT organization’s understanding and business model to a print services company, which usually has hundreds to thousands of accounts. Selling IT into print accounts, and vice versa for that matter, could be perceived as a challenge and an opportunity.
According to Brian Suerth, President of TAG, acquiring an independent computer consultant—those one- or two-person operations that manage a baker’s dozen or so clients—fails 29 out of 30 times. “The dealer might have worked with a group like this before, but it just isn’t sustainable in the long run,” he said. “For a variety of reasons, including the former self-employed now having to report to somebody.”
The smarter move is to seek out IT organizations with a minimum of six or seven employees (owner/salesperson, a few technicians, admin staff) to acquire or with which to merge. Firms that have fewer than six people aren’t able to scale as easily and usually don’t have a defined sales process; conversely, the more team members in the IT house, the more likely scalability can happen, with both accounts managed and sales.
“There’s a lot of consolidation happening in the dealer and IT communities,” Stein said. “Roughly 90 percent of acquired IT firms offer telephony/hosted voice—this is a major part of the equation today compared to five years ago. And it’s really younger CEOs who are aggressive about making IT acquisitions, not Baby Boomer principals.”
More dealers have attempted to start an IT practice from the ground up (70 percent) instead of acquiring or partnering. What normally happens, Stein explained, is the company will hire somebody who has the right mix of the comprehension of technology and the management skills to know what needs to be done. This person will then assist the sales department in attempting to capitalize on the dealer’s existing client base.
At some point, a champion emerges from the herd to spearhead managed IT sales. A realistic goal at the outset is a single new account per month, with traction gained after a year to 18 months. The leader can now select other team members to form a small—could be two, could be 12, everything’s relative—focus group because there shouldn’t be too many cooks in the kitchen.
Suerth suggests outsourcing the helpdesk and both the network and security operations centers. In this scenario, the outsource organization(s) will handle 80 percent of fixes, leaving the dealer in the catbird seat: While tackling the extra 20 percent inhouse, the staff has the time to concentrate on project work and, most crucially, new business.
“Being an IT services provider helps SMB owners in any industry accomplish their strategic objectives through the utilization of technology,” Suerth said. “How do we leverage technology to drive sales, to help keep customers, to drive a wedge between the competition? Managed IT has an answer to those questions—though there’s nothing wrong about strategic acquisition, building a practice that generates revenue is still more rewarding than simply paying for the growth and the client list.”
This method certainly has a number of the same traits as outsourcing, specifically the aforementioned helpdesk and op centers, but it typically winds up as a lead gen exercise—far too often, the “you scratch my back, I scratch yours” philosophy doesn’t net the desired outcome and results in too many one-off sales. Sure, plenty of positive examples of dealers that enter the IT arena via partnering exist; on the other hand, success can be slow.
“If you don’t own the customer, you don’t own the business,” Stein said. “Industry is changing, and margins are declining. We’re always happy with one-off sales, but the recurring revenue—that’s managed IT, no secret there. When dealers partner with IT organizations, it tends to show that said dealers are looking for a way just to be able to play in the game.”
Fair enough. The IT industry transitioned from its break/fix days to its current “managed” state only 14 years ago, so it does make sense that many dealers can’t wrap their heads around it, seeing as IT services is still relatively new and, like with document imaging, ever evolving. Companies need to ask themselves: How do we do project work? How do we price it? How do we onboard customers? Once this occurs, it becomes plainly obvious that moving beyond a simple partnership makes sense.
Key Point(s) Summary
Having options is always nice. They bring about flexibility, versatility, and swing the doors wide open to customization as options can help you work in the way you want to work. Another ramification is that they allow your business to employ a strategy that encompasses a “solid mix”—to create a managed IT practice culled from the best parts of the acquire, build, and partner methods.
All that notwithstanding, the acquisition route is most likely the surest thing to a best bet, but of course it requires the largest investment. Building your own managed IT program, while perhaps the most rewarding if the dealer can truly make it happen, surely requires more patience than simply snapping up an IT firm, or three. Partnering can be effective as an entry point into the arena, but it normally leaves the dealer with more questions than answers and, to boot, less revenue.
But, if a dealer is able to start by building its own managed IT practice, supplementing it with some strategic partnerships and then, if the money resource is available, acquiring an IT organization, the dealer could be on the road to profitability in yet another area of the business.
Stay tuned for the next installment in this series!
All statistics courtesy of TAG, a managed IT “brain bank” that’s been around for over 20 years. The company has its own IT services business and runs the Association of Managed Technology Services Providers, while also offering education on topics such as sales training & management and financial analysis & industry benchmarking, as well as assisting in mergers & acquisitions and employee hiring & retention. With over 400,000 customers in approximately 140 markets across the United States and Canada, the Technology Assurance Group is a powerful resource for all things managed IT.