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MSPs And Application Development: Great Fit If Approached Carefully

TrueIT's Zac Paulson told his MSP peers at the NexGen 2019 conference that they should look at application development as a new way to expand their business in their existing customer base, but not to dive in head-first.

MSPs are going to find application development a lucrative, and probably necessary, part of their businesses going forward, and they will need to be prepared to face a wide range of issues different from their current practices.

That's the word from Zac Paulson, CEO of TrueIT, a Fargo, N.D.-based MSP who gave MSP attendees at the recent NexGen 2019 conference his tips for starting an application development business from the ground-up.

NexGen is produced by The Channel Company, CRN’s parent company.

[Related: HCL's DRYiCE Beefs Up AI, Cloud Offerings For Enterprise Channel Partners]

The first step to building an application development business is to define one's practice, and there are several possible roads to follow, Paulson said.

The first type of practice is as a custom, stand-alone application development house, where the business could build Microsoft .NET applications for Azure, local applications, Software-as-a-Service, and so on, Paulson said.

For partners without a development shop, integration of multiple applications is low-hanging fruit, he said.

"Everybody's got a couple of pieces of software that don't talk to each other," he said. "And that's where we usually get the most value and start that conversation."

TrueIT learned the hard way that there are two ways to approach development, Paulson said. The first is to hire low-level developers and hope they know what they're doing before letting them loose on the client. The second, and preferred, way is to pay the extra money, usually double what low-level developers cost, and bring somebody in with a consultative approach.

"Having done that now for the last eight years, I would go with the better developers from the start," he said.

It is also important to remember that application development is not just about coding, but also requires a system architect consultant, Paulson said.

"This is much like in the MSP world where you have that engineer that can talk the client into the solution and solution architecture," he said. "It's the same thing in software dev. I would recommend bringing in somebody that can have that type of conversation. You could actually outsource the rest. We don't. We do all the stuff on-shore. But you can actually outsource the rest if you have a good enough software architect."

Leadership is important, Paulson said. His company has a separate leadership team for its managed services and its application development businesses.

"When you roll out an infrastructure project, you get a lot this month, and you're through," he said. "Even a long infrastructure project is a couple months. A normal software development project is two, three, six, ten months, sometimes a year."

Application development has changed in the cloud era, Paulson said. He noted that when TrueIT started in development, client expectations changed dramatically.

"Clients are used to consuming applications in the cloud," he said. "Most of our clients are consuming, whether it be Google, AWS, or Microsoft, they're consuming cloud apps today. Their banking is online, everything's online. They're looking to do that themselves."

This means in most cases there's no need to talk clients into a hosted application, Paulson said. Also, he said, cloud hosting environments have changed.

"When we got started with this, we went to Rackspace and we bought a half rack," he said. "We bought individual servers. We had to commission long terms with them. And now with the consumption model, we're going to Azure and we're just picking up what we need."

Clients are also now all expecting to consume Software-as-a-Service, Paulson said. "They're not looking to make giant investments in infrastructure."

TrueIT opted to focus on Microsoft Azure environments, although there are any number of other public, private, and hybrid cloud environments where application developers can work, Paulson said. Developers also have a wide range of cloud tools to work with.

A big first step for application development is to define a strategy, starting with a choice of developing on a platform or on traditional infrastructures plus cloud, Paulson said.

For the former, he meant developing on platforms like CRM (customer relationship management) or ERP (enterprise resource planning). For a company like TrueIT, where installations typically run $50,000 to $100,000, that may be managing the pieces that connect to the client's business, he said.

He cited as an example the Ronald McDonald House in San Diego.

"They're an interesting beast," he said. "They're not a hotel. They have donors. They have volunteers, but there's not a commercial software that just does that. So we used Microsoft CRM to take all the contact databases. Then we went ahead and added in the hospitality function, so their grooming, cleaning, and all that stuff is tracked through there. And then we went ahead and we added the donors, the volunteers, and all that information together."

That is a good example of what platform development can look like, Paulson said.

"It's pretty sweet because you do get the recurring revenue, you get that revenue from the cloud business on the Microsoft CRM along with Office 365," he said. "You also get the ongoing updates because Microsoft is willing to change things, and you're going to have to change things. And then of course, development is addictive. You're going to get more projects. Because once they start using the software, they realize that their software couldn't do this, or could do that."

For traditional-plus-cloud, Paulson cited a TrueIT customer, a large agriculture equipment auction house in North Dakota, which had been paying 3 percent on revenue commission to use a software platform, which really became expensive as the company's revenue grew to $60 million, Paulson said.

TrueIT built a new platform for that client, and is now looking at offering it to smaller auction firms across the country, he said.

Developers can choose to work on Azure, AWS, Google, or other cloud platforms, Paulson said. His company focuses on Azure because it is easy to add performance as needed.

After that, it is important to select the right cloud tools, Paulson said. Each platform will have a set of tools best suited for it.

It is also very important to develop good business practices, Paulson said.

"You've got to come up with what are your processes going to be, what's your documentation, and what sort of standards are you going to implement," he said. "For us, our standard is Microsoft. We're just not going to deviate. ... You need to have those standards and figure out who are you as a company and where are you willing to draw the line and say, 'that's not a fit for us.'"

While a company starting out in application development may let the developers handle project management for no charge, it should be a billable activity, Paulson said.

"We go to our clients and say, 'You're going to get your project managed professionally, and you're going to pay us to do that,'" he said. "This is another way to test that a client is mature enough for software development. ... One of the things that we learned that was the biggest takeaway from development is your buyer is often times not mature in what they're buying."

This can be a hard concept for people who are used to knowing what they are getting with a new PC or server, Paulson said. However, buying an application for a quarter-million dollars that will take two years to build requires educating your client about the importance of project management, he said.

Solid contracts between MSPs and their clients are absolutely necessary when developing applications, Paulson said.

"Contracts, contracts, contracts," he said. "And one of the things I've probably learned most is, make sure you have your E&O (errors and omissions) insurance up to date. Clients can sue you for anything, regardless whether you're at fault."

Paulson said his company is learning this the hard way right now with a client that is on its third CEO and second operations manager and with a CFO trying to keep track of everything.

"They think they didn't get what they bought," he said. "But they signed the time and materials contracts. Their third CEO is under his third opinion of what this thing should be. And yeah, they go ahead and they drop the lawsuit. Well, what are you going to do? You got to make sure you have that documented. You’ve got to make sure you have E&O insurance."

John Head, vice president of PSC Group, a Schaumburg, Ill.-based solution provider, said his company has a strong application development business, and takes advantage of a team of business analysts and project managers to make it a profitable business.

"I have people who go in and, you know, digging through the processes and understanding what the users really want, who's the right product owner," Head said. "So by the time we're doing a software project, we know what we need to know. It's a very interesting model, but it means I'm looking at 100-ish people working 40 hours a week. So instead of looking at how much recurring revenue I get, it's this bucket of billable hours that has to be filled up."

Head said he likes Paulson's approach of being purely focused on Microsoft environments.

"That's not our way at all," he said. "And the fact that he won't do any legacy work? We do lots of legacy work. But focus is good."

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