I remember growing up and having to drag out the map to plan a trip. (The key was always folding it back up the right way!) I would study the map, find where I was as a starting point, and then begin to plan my trip to where I was heading. Now, I simply pull my phone out of my pocket, search for my destination in the Maps app, and let the phone use “Current Location” as its starting point. In order to start a journey, there must be a good understanding of the place of departure.
As a Service Provider, you need to understand where you are with your business. Where are you compared to your peers? Where are you relative to other businesses and competitors who are fighting for the same customers, private equity, and investment dollars as you?
Whether you provide traditional, managed, or cloud-based solutions for your customers, identifying your business model accurately now is the best way to start mapping out how to get where you want to be. The journey of transformation is not an easy one. Much like the summer road trip, it is fraught with delays, roadblocks, and detours. But the journey is always worth it. So let’s get a good understanding of your “Current Location” before starting your transformation journey.
As a Service Provider, it is important to take a moment and consider what your service mix looks like and what the associated revenue is for each service. Who are you? Are you a traditional service provider where your customer environments are located on customer premises and co-managed by their IT team and your team? Are your services typically reactive or project-based where the work effort is directed by the customer? Or, are you a managed services provider, where you proactively manage the customer environment for a fixed or near fixed monthly fee? Do you manage a wide range of technology solutions depending on the customer’s specific technology mix? Or, are you are a cloud services provider where you provide computing resources on monthly basis based on consumption? Do you aggregate or broker other cloud options to provide the customers the most efficient and effective solution?
Whichever of these is your predominant business model, you may ask, “is this who I want to be?”
Traditional service providers are likely to understand that creating the most enterprise value in the organization will come from transitioning to a managed/cloud based recurring revenue model. (More on this in the next blog!) That transition takes time, strategy, and a great deal of organizational will. To embark on this transition, you need a firm grasp of what your current strengths are so that you can preserve those through the transformation. Which of your sellers “get it” with regards to the new consumption models? What offerings are you best at and uniquely equipped to deliver? Is there a vertical market that you have had distinct success with? Understanding these areas of strengths will allow you to continue to focus on them while pivoting the business in other areas.
It is helpful to really consider where your revenue comes from. Investors are going to scrutinize your revenue mix in order to determine which line of business is adding the most to the company’s profitability. This exercise is exceedingly valuable for you to undertake as well. Is my revenue based on just a few customers? Do I have risk associated with that? Is my revenue based too heavily on one segment of my service offerings? Are the services that produce the most revenue also the ones that are the most profitable and desirable for my business? Have you, in the interest of growth, brought on customers that are too demanding or have too many variables to really manage on a fixed fee basis? Taking a customer’s mess for less cost may allow you to acquire new customers, but are they profitable? Are they putting a strain on your limited resources? It is easy to get engaged in a race to the bottom with competitors, but you may end up providing services that don’t cover your time and resources. These are all important things to analyze to determine your current situation.
Once you have looked at your revenue mix, customer composition, the profitability of individual service, and your go to market strategy, you can start pinpointing where you want your company to go. Maybe you want to be a Managed Services Provider with fewer, but larger, customers who benefit from your identified strengths. Maybe you want to be a cloud services provider where you demystify the cloud for your customer and allow them to reap the benefits without doing all the work themselves. We will go into more detail in upcoming blogs about how to transform the specific areas of your business to meet the challenges and realize your goals. Before we do, let’s take some time for introspection and really get a firm grasp on our current state.
Continually transforming your business is crucial to your long term success. Going through the process of understanding what your model looks like is essential to understanding your starting point. You need to be honest with yourself about where you are so you can prepare a solid plan to get your business to the desired destination. Next week, we’ll look at the destination. In the meantime, start taking action by working on your business instead of working in your business. From today’s blog, you should:
- Perform a revenue composition analysis.
- Perform a customer profitability analysis determining which of your customers are your best ones, not on size, but on profitability.
- Perform a service offering profitability analysis so that you can fully understand which services provide you the most profit.
- Conduct a focus group with your technical team. Ask them what they feel they do best. Ask them what solutions they feel provide the most differentiated value. Ask them what they are seeing in the market that you can respond to.
- Perform a churn analysis. If customers have left, determine why, code them accordingly, and begin to look for trends.
- Perform a new customer analysis. Look at the new customers you acquired in the past 12 months. How did you find them? What did they buy? Who were the competitors?
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