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DON'T EAT THE SINGLE COOKIE NOW
Not only do most solution providers not want to have that difficult conversation with customers, they refuse to cannibalize their existing profitable infrastructure business, said Christopher Hertz, founder and CEO of New Signature, a Washington, D.C., solution provider. Those solution providers not moving to the transformative cloud services model are not stupid people, said Hertz. "Those VARs are still making a lot of money on the resale of on-premise infrastructure hardware and software and look at getting into cloud services as gutting their on-premise revenue. What they see is there is still enough business in the on-premise model to hang onto."
Those vintage solution providers are taking the "path of least resistance," said Hertz. "It's like water. The rule of nature is things go the path of least resistance," he said. "People are lazy. If they can make money easier selling on-premise infrastructure, that is what they are going to do."
Hertz compares the plight of the on-premise infrastructure provider to a child that can either have a single cookie that is put in front of them or four cookies if they can resist the single cookie in front of them for a certain period of time. Those child development tests, he said, show that children with the willpower to wait for the four cookies will ultimately be more successful as they grow up and become adults. The same is true, he said, for solution providers that are willing to make the heavy investments necessary to compete in the cloud services era even if it cannibalizes their current business. "It's difficult to go out and make that investment to get that cloud talent," said Hertz.
The key to thriving in the channel in 2018 is to have a clear vision and detailed plan on how to evolve the business in a fast-moving IT market, said Hertz. New Signature, which is celebrating its 10th anniversary in March, grew 50 percent in sales last year to $10 million by offering on-premise infrastructure, annuity-based cloud services and robust software application development services with about 65 percent of sales coming from system integration services, 10 percent from hardware/software resale and 25 percent from application development.
Hertz is planning for that application development business to nearly double to 45 percent of sales in 2018 with 50 percent from systems integration services and the remaining 5 percent from hardware/software resale. What's more, he said, by 2023, 70 percent of New Signature's sales will come from application development, 30 percent from system integration and none from hardware/software resale. He sees as many as 50 percent of the current crop of solution providers not making it to 2023.
"In 10 years it is unlikely that customers are going to have servers in their office or at a data center," said Hertz. "If your business is predicated on selling that on-premise hardware and software, you have a problem. The opportunity to live in this new cloud services ecosystem is no longer around building infrastructure, it is around building applications."
That's why New Signature has invested heavily in application development, delivering Web services applications such as Votifi.com, billed as a platform for modern political exchange. Votifi.com allows people to exchange ideas and provide feedback on specific issues. New Signature has also developed ioby.org, a micro-funding services site aimed at allowing local eco-friendly projects to get funding.
New Signature has made the big investment in application development services, Hertz said, using the same willpower analogy as the child development test with the cookies. "The choice is do I want to eat one cookie now or four cookies five years from now?" said Hertz. "We're making the investment and taking the long view."
Many solution providers sticking with the old model think they will have time to change and avoid the shakeout, said Hertz. But then there's a tipping point, where it is too late and their business is failing. "You have to be willing to think about what you can do better even if it means tearing down a business that is doing well," said Hertz. "That is not something that comes naturally for people. It is easy to live in the moment, but to succeed in this business you have to constantly reinvent yourself."
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