10 Secrets To Making The Cloud Business Transformation2:00 PM EST Fri. Feb. 08, 2013
The cloud computing revolution -- a treacherous business model and technology shift -- has resulted in record consolidation in the solution provider market in the past several years. The exponential rate of change has obliterated the old product-dominated solution provider business model in favor of a services model where annuity-based managed services/professional services with a high quotient of a partner's own intellectual property are front and center. Here are 10 tips from solution provider CEOs who have been successful making the cloud computing business transformation.
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Dimension Data Americas CEO Jere Brown, who has powered a cloud computing transformation at the $5.8 billion IT services giant, said many solution providers fail to get out of the gate on a transformation because they simply don't put together a comprehensive and detailed business plan. It sounds obvious, said Brown, but it's amazing how many solution providers just don't do it. "You have to have a clear vision of what you want to be," said Brown. "You need a strategy. You have to have three to five key initiatives that you have to execute on to achieve success."
Even when solution providers put a stake in the ground with a plan to transform their businesses, many fail to measure their progress with a scorecard, said Brown, who led the charge on three-year plan that transformed his company. Measuring and tracking progress with a balanced scorecard is key to a successful transformation, he said. "In everything that we do, we have strategic objectives," said Brown. "We have a dashboard of 12 business priorities. We probably have two or three business ventures for each priority. So there are 30 things that are on our dashboard that we measure relative to our business priorities. And our priorities are linked to our three-year future state transformation plan."
Many solution providers are simply running as fast as they can on a hamster wheel maintaining antiquated on-premise hardware and software reseller offerings rather than focusing on creating a highly profitable managed services business. "When you are looking at a market segment like managed services that is growing 45 percent that you can participate in, why wouldn't you put all your energy and resources into that," said Martin Wolf, founder and president of MartinWolf, a global M&A investment adviser focused on services models that has completed more than 115 deals. "I wouldn't do anything else. Most of these [solution providers] do not have enough resources to gamble."
The quickest way for a solution provider to increase its value in the cloud computing era: build a SaaS offering. A SaaS company is about 25 times more valuable for every revenue dollar than a traditional VAR stuck in the on-premise, infrastructure business, said Wolf. "SaaS adds more value," he said. "You are not beholden to vendors. You have higher gross margins and higher growth."
Ron Dupler, CEO of GreenPages Technology Solutions, who has been largely responsible for transforming the Kittery, Maine-based company into a cloud computing innovator, said the problem with many solution providers is they simply refuse to let go of the past. "The biggest mistake I see right now is people continuing to evangelize solutions to customers that aren't necessarily right by the customer, but conform to what partners know and drive the most profit for their organizations," said Dupler. "Short-term gain isn't going to drive long-term customer value. And we need to lead the customers forward through this transformation as opposed to perpetuating the past. The market needs leadership right now."
The most critical factor in success or failure in the cloud era may well be developing unique intellectual property. GreenPages Technology Solutions, No. 153 on the CRN Solution Provider 500 list with $110 million in annual sales, has invested millions of dollars of its own capital in its own unique intellectual proprety: GreenPages Cloud Management as a Service. GreenPages' CMaaS product is the centerpiece of an ambitious five-year company plan to build a $300 million business.
New Signature, a Washington, D.C., solution provider, said one of the secrets to succeeding in the cloud era is developing a robust application development business. Among the compelling Web services applications developed by New Signature are Votifi.com, allowing voters to exchange ideas and vote on specific issues, and ioby.org, a micro-funding services site aimed at allowing local eco-friendly projects to get funding. Christopher Hertz, founder and CEO of New Signature, predicts that the company's application development business will grow from 25 percent of sales in 2012 to 45 percent of sales in 2018. "The opportunity in this new cloud services ecosystem is no longer around building infrastructure," said Hertz. "It is around building applications."
Hertz said many solution providers end up not making the business transformation change because they refuse to forego short-term satisfaction in order to achieve long-term gain. He compares it to a child that can either have a single cookie that is put in front of him or four cookies if he can resist the single cookie for a certain period of time. The same is true, Hertz said, for solution providers. Most go for the "easy money" selling on-premise infrastructure solutions rather than investing in the future cloud services that will cannabilize their current business. "It's the path of least resistance," said Hertz. "It's harder for them to make investments and move customers to the cloud."
The battle cry for solution providers is to either go big, scaling up to dominate with a comprehensive suite of cloud services, or go small, providing niche services in vertical or specialized markets. The worst place to be is stuck in the middle in the midmarket. "Either go big or go really, really small," advised Wolf. "It's not go big or go home. It's go big or stay nichey."
Sometimes the simple things are the hardest, such as listening to customers and responding with business solutions. Bob Venero, CEO of Future Tech Enterprise, Holbrook, N.Y., said that formula has worked for his company for for 27 years. "We listen to what our customers' goals are for the next year, two years and even three and four years out and then adjust our business to help our customers meet those goals," said Venero. "That is the foundation of our company and the core of what we do as an organization. As a solution provider you are there to help your customer accomplish their IT goals. The last thing you want to do is limit yourself. What might be market-leading today might not be market-leading tomorrow."