Recurring Revenue Riches: How One Solution Provider Got Ahead Of The Managed Print Services Market

For Walter Lemmermann, managed print services was his area of focus before it even became a term.

Advantage Enterprises, a managed print services company based in San Francisco, has seen its MPS business thrive in recent years. A big reason for that success is because as CEO, Lemmermann made the shift to managed services and recurring revenue streams in the late 1980s -- long before most other solution providers. In an interview with CRN, he talks about his MPS business, how he shifted to a recurring revenue model, and what makes his business so prosperous. Here are excerpts from the conversation.

CRN: How did you get into the managed print services market?

Lemmermann: In 1987, I looked into the idea of refilling toner cartridges, and I investigated it for a friend of mine getting into that side of the printing business. I thought it was interesting because toner was expensive. We always had problems at the bank where I was working [at the time] because we didn't know which toners or which printers to buy. We had an office supply guy who would take our order on paper and pencil, and the service was great. But the refilled toners we bought were just garbage; they would leak and not work.

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But there was a guy who refilled toners in his apartment at home, and there was nothing wrong with them. I thought if I can take the customer service with the quality of this other guy's toner refilling, I thought it could be a service to deliver to corporate America. I went out to the all these public accounting firms I know in the Bay Area and I asked them how many toners they used once a month and they didn't know. So I asked to buy the empty toners from them because I thought that if I did that then they would save them. So I bought them for a year and people were going through them like crazy. That's how I did my market analysis to determine how much of a market there was for [managed print services]. So that's why I got into the business -- refilling toners.

CRN: How did you go from refilling toner to managed print services?

Lemmermann: I had a business partner at this company and he knew David Packard so he made an appointment with him to see if we could become an HP reseller. It was difficult for me to go to market with my concept because if you buy refilled product, it would void their warranty. So I called HP and asked to become an authorized reseller, and they said, 'Are you kidding me, you're selling resold product and we don’t believe in that.'

I was 30 years old; Packard was 85 years old. I explained to Packard what I wanted to do; I said I want to give people who buy HP products and printers an easy way to use the products because I was thinking of the guy who easily delivered refilled toners. I wanted to deliver a good experience and I also wanted to guarantee the revenue stream. When you are selling a printer, you need to sell toner, and I wanted to create a program to push product as much as you need so it is a recurring revenue stream. So I became the first authorized service center in the world to refill toners for HP, and that was in 1988.

HP started to understand how important the services were. I had contracts with law firms already for a monthly fee that covered everything that had to do with maintenance and consumables with printers. And then HP started getting interested in looking into that. Going from there, I would do service and repairs bundled with the toner refills. But going to market with managed print services was my way of basically analyzing what people currently had and what their operating costs were. That's when I realized my value in the marketplace is to educate people so they can take complex things and understand simple things. The idea of the cost of toner is complex, so I wanted to make that simple.

NEXT: How Important Is Bundling Services Together?

CRN: How important is bundling services together?

Lemmermann: It’s the same thing with IT services [and other types of hardware]. The biggest problem that people have today is that the copier companies have never really marketed before. They sell all this separately and I think that is a big mistake that it's not bundled. A bundle makes it difficult for people to go away because if the printers and toners are unbundled, then they're a commodity. You might make a sale, and it's transactional -- it's not annuity. So the key to me is turning it into annuity, let them use the [MPS] software and they pay you [a] monthly fee.

CRN: What did you see as the benefit of a recurring revenue model back then?

Lemmermann: I started transactionally for a year until I realized the people competing with me were scamming. There was a term called "toner phoner" and they would phone and deliver bad products. So I realized transactional is when you're dealing with a commodity and low barrier to enter a market. A year after, working with HP, I bundled the warranty and repairs and service with consumables.

CRN: What differentiated your company in the way you delivered your services to the customers?

Lemmermann: I believe that you have to look at things holistically: look at all the scanning, copying and printing, and then you have to look beyond that in terms of what the document process flow is, how people take a piece of paper and turn it into a digital document or how they store that, how do they retrieve that. It’s all-encompassing and making things simpler. It's asking what are the needs and the best technology has to offer to make life easier.

I had a client that said he has three kids at home and he only sees them in the morning because when he gets home he is answering emails until 8 p.m. and, by then, his kids are in bed. He said ever since he started with us, he doesn’t get emails for printer problems anymore; he sees his kids before they go to bed, and that's the value of our company. That’s all we're trying to do. We're trying to make it simpler and easier so they can do whatever they need to do.

CRN: How do you engage clients with managed print services?

Lemmermann: We go out and talk to people on sales appointments, we do a consultative sale and ask them what's going on in their environment and look for problems they are having that we might have a solution for. Secondly, we do an assessment; we have a checklist to go through and we talk to their people, their IT people and end users and ask them about their current experience, what’s falling short, and try to identify areas where we can help solve the problem. Our assessment includes getting their cost, what they are paying for certain things. And then we come back with a proposal that would tailor a solution for them, which is our managed print unique offering.

CRN: How hard is it to keep up in the managed print services market today?

Lemmermann: For the copier company wanting to get into managed print, they will be more of a commodity; that's a transaction-based [model] because their profit comes from selling equipment. They don’t make a lot of money on ongoing residuals because the money is up front. With managed print, we don't take all our profit up front; we take it over the term of the contract so we still have profit from that equipment for five years versus day one and that's it. We delay our revenue recognition as opposed to copier companies taking their profit from the get-go. It's a different business model, and they see it as transactional-based. Some have moved beyond that, but very few. Some are not successful because they can't make it to annuity-based contracts.

Relationships are going to generate a whole lot more revenue than a one-time transaction. The managed print services arena is intended to be more of a long-term relationship sale.

NEXT: How Fast Has Your Business Been Growing?

CRN: How fast has your business been growing?

Lemmermann: Our business is seeing steady growth. We've seen some attrition of page volume since it's usage-based. I've seen 2 percent to 5 percent page volume attrition, meaning people are printing less, but I've seen more color printing than monochrome, which has gone down. Color is more expensive so that has boosted revenue. But in terms of the customer base, we are finding it more competitive. And more people are selling [print services] transactionally and that confuses the market in terms of what managed print is. Somebody could be selling transactionally and calling it managed print.

CRN: How are you marketing your services and getting your brand out there?

Lemmermann: We use business intelligence and we decide who we'd like to have as our client. For example, we call in law firms and use a lot of reference points in the legal sector, and we ask our clients to refer us to other clients. It's word-of-mouth. We don't do any advertising. We get a lot of business from employees moving to other firms. In the last 30 days we've had five [client] employees move from one to another. So the person who is the beneficiary of our MPS program, the IT manager, gets hired by another firm and they see that their printing situation is a mess, so they’ll call us.

CRN: What is your MPS service, True Advantage, primarily about?

Lemmermann: The main thing about True Advantage is that we branded it as a preventative service model where it's all about preventing things from happening. It's solutions-based selling with the core of it being preventative and having the products actively managed so what we have to do every quarter is remind them of why they bought our program because they forget.

What we've found is that typically people are in a reactive model -- if something breaks, you call and fix it. I've had people in that reactive model that usually have 12 repair events for every 100 printers. But with a preventive model, that goes down to four repair events for every 100 printers per month. If you can get their fleet on a preventative model, it really reduces breaks and it helps the users to not have breakdowns. And there are many great tools like remote monitoring and performance maintenance intervals.

CRN: What top vendors are you currently working with and how are you being treated by them?

Lemmermann: Our top vendors are HP, Xerox and Dell. Of all the companies we work with, Xerox is the most credible and honest. They really want to work with their resellers and are very supportive. I don’t have as much fear of the direct channel poaching my business. I can't say that about other OEMs.

There's still some channel conflict at HP. In your publication, [HP CEO] Meg Whitman said she was going to fire anybody that is poaching a reseller partner's account. About a month after she said that, our HP sales representative, who we had some trouble with, resigned. Maybe Meg forced that, we're not sure.

CRN: How do you think HP is doing with its turnaround?

Lemmermann: I would say Meg is doing a much better job indicating a clear direction of the company and expressing how important the reseller channel is to HP. She is serious about helping the resellers sell more HP products and educating them in terms of solutions, not just the hardware. From that standpoint, I see a much more focused communication and direction and leadership, and we haven't seen that in the past. Unfortunately, HP has floundered in the past because they have had such a turnover of their leadership that would change the course of the [channel strategy] back and forth. Meg is probably the first in a long line that said this is the course we're going to take and we're sticking to it, and it's helping HP because they are not having to deal with directional shifts every couple years. I think Meg has a solid direction and communicates well and has more respect from the reseller community than many of the others before her.

CRN: What is your road map for 2014 and what are you hoping to see?

Lemmermann: I am hoping to see a big increase in IT services and will invest more in that. We will see some growth in non-printer but, generally, in IT services any kind of services that we can add like help desk support, backup data, monitoring of servers, the idea is to monitor equipment and move it to managing the equipment. A lot of our clients have their own cloud solutions so it's hard to resell a cloud solution to a big law firm. We've got a cloud solution from HP we haven’t implemented yet, which is something we just need to do. We don’t have our own cloud solutions yet, but that is something I want to do in the future.