The Service Provider Transformation series aims to help guide businesses through a demanding, innovative time. From defining your current go-to-market structure to understanding how to productize your differentiating factors, this blog series addresses challenges and solutions applicable to Service Providers everywhere. Subscribe to our blog, follow us on Twitter, and subscribe to our YouTube channel for actionable updates and processes that help grow, scale, and transform your Service Provider business.
Topics covered in the Service Provider Transformation Series:
- Understanding what your predominant business model is and where you are now.
- Understanding where you want to take your business.
- Know your strengths, determine your differentiated value.
- How to productize your offerings and create solutions that are reproducible (operational leverage).
- Sales transformation.
- Creation of a product suite- what goes in it and why.
- Service delivery model- how do you create a service delivery model to support your suite?
- Marketing/demand gen- how do you market your services and create demand?
- A story to tell. What is your unique story that you want to tell to the market?
- Bringing it all together.
What is Your Current Location?
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 a 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. 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. Start taking action by working on your business instead of working in your business. 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?
What is Your Desired Destination?
Ideally, transforming your business would be as easy as summoning an Uber and having them take you to where you want to go. Unfortunately, getting to your destination is more like the trust you must have when you use Google Maps. (It might feel weird, but you trust its constant recalculation of the best route, consideration of all options, seeing how things are going for others, etc.)
For most service provider business owners, there are just a handful of potential destinations that are in play. They typically fall roughly into one of these categories:
- Liquidity event- you have worked very hard to build this business and you are looking for an exit. Maybe you sell to a larger Service Provider, typically called a “strategic”, or you sell to a private equity firm. Most of these deals will allow you to “take some chips off the table”, roll some stock forward, and get a second bite of the apple in a future event. (For any of you that have been through this, you know I just hit Buzzword Bingo in this paragraph!!) But, there are cases where you simply monetize your asset and go travel the world.
- Build for the future- perhaps you have partners or family involved in the business. You helped create the business and have grown it handsomely, but now you are ready for a new challenge. You want to create a long-term business that can be handed off to your partners or family. Sustainability is the key here.
- Lifestyle business- maybe you don’t really want to do anything else, but you want to do less of what you are doing now and build some financial security. There is nothing wrong with this either. You can build a valuable business, create a great place for people to work, and enjoy success without the pressure cooker of trying to transact your business.
Whichever destination you punch into your app, the routes will be a little different, but there are some common waypoints with all of them. First and foremost, as we mentioned in the first blog, you want to create what is called “enterprise value“. You want to create a valuable company, irrespective of what destination you have chosen. Running your business like you want to sell it is rarely the best option because that lends itself to too many short term decisions without building for the long term. How then do you create enterprise value?
The easiest way to think about this is from a contribution margin perspective. You need to take your top line revenue and categorize it by type of revenue. A typical categorization might be “resale”, “professional services”, and “recurring revenue”. Then, you need to allocate your costs effectively across these lines of business. (Your accounting team can help you allocate these correctly if you don’t look at this way already.) Then, where possible, you need to allocate your G&A expenses by line of business. What you want to get to is contribution margin to EBITDA by line of business.
Once you know what portion of your profits are tied to each line of business, you can assign an exit multiple to that type of revenue. For estimating purposes, you can use the below exit multiples for EBITDA:
- Resale: 2-3x
- Professional Services: 4-8x
- Recurring revenue: 8-12x
You will arrive at a blended multiple that is a weighted average based on your actuals. Typically, the average IT service provider can see a blended exit multiple around six times EBITDA. Very well run IT service providers that have clean accounting and nice profit margins can see 7-9 times EBITDA exit multiples. You will always hear about the company that sold for some kind of crazy exit multiple, I know of one that sold for 13.4 times Last Quarter Annualized (LQA) EBITDA, but those companies typically have VERY high-profit margins and 90% or more of their revenue is recurring.
When you run these numbers, you’ll probably discover what people in our industry call the “valuation gap”. That’s the gap between what you thought your business was worth and what it probably is actually worth. (Note: people experience this personally all the time with their homes. They think it is worth one thing, but when they put it on the market, they find something entirely different.) Your job is to fine tune your business to bridge that valuation gap. You’ll need to tilt your revenues more towards a recurring one and build efficiency into your service delivery model to maximize contribution margins. (A good blended EBITDA target is between 7-12%. Very high performing service providers are in the 15-20% range.)
As you consider this journey from where you are to where you want to be, you’ll have to traverse congested roads, back roads, traffic jams, and take some routes that are unfamiliar. But, the view at the end is worth it. Now that you better understand your business (current location) and your desired outcome (destination), we’ll begin to explore the turn by turn instructions that will help you get from here to there. We’ll look at sales transformation, operational leverage, productization, service delivery models, marketing, and other topics that will be essential for you to navigate to your desired goals.
Know Your Strengths
You have served your customers in many unique and interesting ways that differentiate you from your competitors, but have you ever taken a step back and thought strategically about the solutions that you’re uniquely equipped to deliver?
Like sports, the classic coaching strategy of playing to your strengths is easily applied to your Service Provider business. You have served your customers in many unique and interesting ways that differentiate you from your competitors, but have you ever taken a step back and thought strategically about the solutions that you’re uniquely equipped to deliver? What about solutions you’ve implemented that creatively solved even a very specific customer problem?
Most managed service providers grow their business doing a bunch of “one-off” type of projects. They typically implement a specific solution for one customer and then an entirely different one for another, quite possibly similar, customer. Maybe you delivered a disaster recovery solution for one financial services customer and then a technically different one to another financial services customer. Would either of those solutions have served the other as well? Do you have other customers that could benefit from one of those solutions, maybe with a small amount of customization? Have you ever socialized a success story internally to let everyone know about it? It’s very possible you have a handful of financial services customers that could benefit from one of these disaster recovery solutions, you just need to spread the word internally and build a sales plan around the offering.
At my last job, we sought points of differentiation. We looked for differentiated solutions (did we creatively solve a problem through technology?) and differentiated value (did we creatively drive a business outcome?). Either way, once the point of differentiation was identified, we knew that we had set ourselves apart from the competition and we could build on that solution. From there, we looked to “productize” – taking a unique solution and turning it into a product – for other customers.
To productize our offering, we started by considering things like:
- Did the customer come to you with a truly unique business problem, or was it actually similar to problems that other customers have?
- Was there a regulatory or compliance change that impacted the business that your solution addressed? If so, that same regulatory or compliance change likely impacts others in their industry as well.
- Is there a macro level change in their industry that is driving consumption?
- Was your solution particularly creative in addressing their business problem?
- Was your internal team excited about the solution because it was “cool” or “cutting edge” – and likely differentiated?
When you consider these types of questions, it is important to engage all of your team members, probably in small focus groups, so you can get a broad look into the solutions you have provided. Consider speaking with anybody in your organization that has regular engagement with your customers and all the functional areas: presales, sales, engineering, customer care, et al.
Ask them questions like the ones above and simply record their answers. Odds are good that themes will emerge that you had never considered before. Maybe you have a concentration of expertise in healthcare around electronic medical records or a concentration in community banking. You may learn that you have a disaster recovery/business continuity solution that you have sold across your portfolio, or that you have a unique hybrid solution with one of the public cloud providers.
Once you have engaged the team and discovered what your differentiated solutions are – defined as ones that are better and different than what your competition does – you can begin to build internal success stories around them and look to productize them. While productization is largely an operational exercise, success stories are a way to inform your team of the unique solutions you have done for customers. If you have done a great job with community banks, you need to create a success story on that, socialize it broadly internally, and then build a sales plan to take that solution to every community bank, both customers and prospects. The deeper you go in a specific market, the more differentiated you become, creating an even larger gap between you and your competition. This creates more revenue opportunities, higher profits, and more enterprise value.
So, while you may not be the coach of a sports team, that path to success and yours are largely similar. For your business to grow profitably, you must know your strengths and then you must focus on them.
When you start thinking about productizing your offering, you have to detail all the piece parts, or ingredients, of your solution. From there, think about which elements must be standardized for reliable delivery at-scale, and which ones can remain customized without compromising the supportability of the overall solution. Let’s say, for example, you delivered a disaster recovery solution to a customer and it’s ripe for productization. The toolset that you used to manage and move data to create redundancy should definitely be standardized. The endpoints receiving the data – colo or AWS or Azure – and the overall framework should be customized based on each customer’s infrastructure.
A great way to start identifying how different piece parts should be treated is by analyzing your customers’ support tickets. Take a look at the support history of the customer that received the original disaster recovery solution, and you may notice that certain aspects created higher ticket volumes. These are things that should be standardized, so you’ll want to think of ways to preventatively mitigate these in the productized version you roll out.
If taking apart your solution only to put it back together seems like a lot of work, that’s because it is, but it’s the only way to really create operational leverage. Operational leverage is the idea that you can grow revenues without having a similarly proportionate growth in expenses. In short, “do more with less.” The only way to truly achieve operational leverage is to create standardized offerings that can be delivered and supported by any of your engineers – not just your rockstars – in as short a timeframe as possible. To put it another way, you can’t rely on the “hero effect.”
A good way to illustrate the need and the value of maintaining operational leverage as you start to productize is what we’ll call “The Charley Story.” In this instance Charley – a solutions engineer – was one of the best employees. He’s sharp and personable, great at implementations, and amazing when it comes to troubleshooting. All the tricky problems were escalated right to him. Our sales people were always clamoring to get him on calls with prospects during the presales process, and in turn, customers were clamoring to get Charley onsite for onboarding. The only problem with Charley was that we only had one Charley. Don’t get me wrong, we had some great people that were good at several of those things, but Charley was good at all of them. We simply couldn’t scale Charley. If we put him in presales, implementations suffered. If we put him in implementations, support escalation suffered. Right now you’re thinking you have a guy just like Charley!
With the Charley Story, you have to pivot from people to processes. It is difficult, expensive, and time-consuming to scale people, but you can always scale processes. To achieve operational efficiency, we needed to have confidence that the process would deliver the results we wanted, instead of just Charley.
Productization – a standardized, repeatable approach to a common problem – made this much easier. The sales people had seen the productized solution before and knew how to pitch it to the customer; the process of standardizing the original solution meant there was limited opportunity – or need – for customization; and we showed the customer the entire process along with documented success stories, thereby giving them confidence that their experience would be a good one.
Work through the suggestions below and see if you can build a recipe that yields success for process-focused productization:
- Pick a couple of the solutions that you feel are differentiated.
- Deconstruct the solution into the piece parts and make a list.
- Which elements would you change or tweak from the original solution to make the productized one easier to deploy, support, or reproduce?
- What are the contingencies or dependencies that must be discovered in the presales cycle that will impact the solution? In other words, arm your sales guys with the right questions so you can identify potential sticking points before they occur.
- Document the process! Create a checklist or workflow for all the necessary steps that must take place to implement this solution for a new customer. Pro tip: This checklist should be modified after each deployment of the productized solution to ensure that it continually improves.
- Think about the logistics of selling your new product.
- What does customer acceptance look like? In other words, have a clear understanding of what the deliverable looks like at the end of the deployment, so you can ensure customer acceptance before handing off to support.
- What does the customer need to see before they sign off and it goes to billing?
- Who will be the customer’s primary point of contact?
- What is the best way for them to get support? Remember, behavior rewarded is behavior repeated. If you don’t tell the customer the best way to receive support, they will simply figure it out.
If you follow these steps, you’ll be well on your way to operational efficiency as you productize your offerings. Reduce your reliance on the hero effect and replace it with the right processes.
Think about your Sales team. Is it made up of individuals that can expose your customers to new and different things they wouldn’t consider if left to their own devices, or do you just have a bunch of order-takers? Unfortunately, when I talk to people in the Service Provider Industry, I find that too many stack the deck with order-takers. It hasn’t always been like that.
In the past, Sales reps rose through the ranks of the technology industry, equipped to move the customer from zero to one by selling brand new products and services. They convinced customers to get internet connectivity, to buy email servers, to virtualize their servers, to buy a SAN. Over the course of the past five or so years, innovation has reached a standstill. Customers are sold more units and faster versions of what they’ve already deployed. The sales reps earn attractive W-2s doing this, but have they really served the customer? I’d argue that they haven’t.
Henry Ford famously said, “If I had asked people what they wanted, they would have said faster horses.” When Sales teams take orders instead of consulting with and guiding the customer toward a solution they haven’t considered, they forfeit valuable ground both as a consultant and as a resource for innovative thinking. Think about it this way: you would never accept this type of order taking in other scenarios. You wouldn’t walk into the doctor and tell him exactly what you want her to cut in your knee. You would defer to her expertise. Too often, Sales teams go in and yield the position of the expert to the customer by simply taking an order.
Adding a layer of complexity to the sales process: your teams aren’t just selling to the IT department anymore. In fact, research from top analyst groups tells us that spending by the IT department is on the decline while overall spending on technology is up. Who is spending that money? The answer is Line of Business executives. The Marketing department, the Accounting department, and Sales leadership are spending money on on-demand services and SaaS-based platforms outside the control of the technology team. How then, do you get your Sales team talking to LOB executives? If your sales rep does get a meeting with the CMO, what are they going to talk about? What value will be added?
As you can see, this leads into some pretty difficult questions:
- Do you have true sales reps or order takers?
- Are you having the right conversations with the right people?
- Are you providing value beyond turning a PO into an order with an estimated delivery date?
- If you aren’t adding value and coaching your customers toward new consumption models and approaches… who is? Your competitors?
What is a Service Provider supposed to do? The answer lies in transforming the structure and outlook of your Sales team. The answers here are hard, but as it so often happens, they are the only real way forward.
Some suggestions to begin the transformation of your Sales organization:
- Hire different people. You need a very clear profile of what you want in a sales rep. (Hint: “They know lots of people,” isn’t good enough.) You need a team that can communicate effectively, can challenge the customer’s viewpoint, is comfortable discussing money, and understands both the customer’s business and the drivers of that business.
- Have different conversations. Your new reps, hired against a tight profile, will be equipped to do this. You will have to train your current team to have different conversations. Force them to tear up the PO and instead have a discussion about consuming technology via a recurring consumption model. Trust me, it will seem awkward to throw away a sale, but this is the surest way to provide value.
- Structure your team differently. Too many organizations have a Sales team that is responsible for both new sales (hunters) and account management (farmers). You need to hire people with the right skills for the right roles, and you need to separate those roles into separate and distinct functions. Some members of your team – those that are best equipped to do so – should be hunting for new opportunities. Other team members should be farming existing accounts for growth opportunities.
- Have a story to tell. This is an important tool for your Sales team. When talking to customers, there is not greater tool than to say, “This is what some of our other customers are doing.” It is a powerful way for customers to connect with their peers and gain insights into how other companies are addressing similar challenges.
If you introduce your customer to new things and move away from order-taking, you are adding value and building trust. These are things that grow revenue.
Creating a Product Suite
A great business book is The Blue Ocean Strategy. Its underlying concept is pretty simple: your product is either competing in a Red Ocean or a Blue Ocean.
Red Oceans are saturated markets where the rules are known and the customer has established expectations around pricing. In markets like these, you must steal market share from others by outperforming them in order to build revenue.
Blue Oceans surround markets where a game-changing product is introduced for the first time, and there are few—if any—competitors. Demand is created in these markets, rather than fought over. Customers don’t know what to expect or how much to pay…at least at first. Compared to the in-fighting of a highly competitive Red Ocean, the objective in a Blue Ocean market is to educate the customer, ushering him or her into a new reality.
You can find lots of examples of Blue Oceans. Tivo entered a Blue Ocean market, leaving VCRs to duke it out in the red seas. The iPhone completely changed the game when it was introduced, and, as a result, enjoyed a Blue Ocean market. That meant my Motorola StarTac and Blackberry were competing in a Red Ocean. It also meant that Apple could leverage the consumer’s lack of pricing expectations and charge $1K for a phone!
As you can probably see, this relatively simple concept can have significant implications for your managed service provider business. Once you’ve productized multiple offerings, it’s time to think about the makeup of your product suite. Thinking in terms of a Blue versus Red Ocean can go a long way to inform both positioning and strategy. To get there, you’ll need to balance two seemingly competing interests: where do I fit in, and how do I stand out?
Where do I fit in? (Red Ocean)
You’re always going to need the “table stake” solutions. These are solutions that you’re expected to provide, and most importantly, they’re the solutions that prospects are actively seeking. Your expected offerings compete in a Red Ocean. That means all of your competitors are going to offer similar options, and in order to build revenue, you’re going to have to go head-to-head to steal market share. To get a good sense of the market landscape, it’s recommended to do a competitive analysis. Begin by asking your sales team which competing companies you typically run up against in the sales process. Next, talk to your customer support team and ask them where your customers go when they leave your business for someone else.
Once you know which companies you’re up against, you’re fully equipped to do this important analytical exercise.
There are many different ways to go about a competitive analysis, but here are some ideas to get started:
- Visit the websites of the companies on your list and identify their offerings.
- What do they lead with?
- What is featured on their site?
- What are some of the messages and themes they highlight?
- Do they focus on particular vertical markets?
- Sit down with your newest customers and ask them questions:
- How did you find us?
- Why did you pick us?
- How do we stack up against our competitors?
- What did you like about the sales / onboarding process?
- Is there anything you would you change about your experience?
- What does our solution NOT include that it should?
- Was a competitor’s offering significantly different than ours?
Once you’ve gathered this information, you’ll get a good sense of how you fit into the overall market. You should be able to start answering these important questions:
- Are you the value player?
- Are your offerings broader than the others?
- Are your offerings narrower and more focused?
- How are your message and focus different?
- How do you steal marketshare from your competitors? (Red Ocean)
- How do you build a moat around your customers? (Blue Ocean)
The answers to these questions will help you understand how you fit into the larger competitive environment.
How do I stand out? (Blue Ocean)
Once you understand how you fit in, you need to think about how you can stand out with offerings that are unique to your business. If it isn’t already painfully obvious, you’re going to have to CREATE ways to stand out. This is the true culmination of the “understand your strengths” and “productization” exercises discussed earlier. The good news is that if your offerings are truly unique, you’ll be working with a Blue Ocean. The competition will be slim, and you’ll enjoy price-setting power.
To start differentiating your business, ask yourself these questions:
- How do I draw positive attention to the ways that I am different?
- Can I feature an offering that the customer may not have even considered?
- Can I draw my competitors into a comparison that they can’t win? (In other words, is my differentiated solution so strong that they simply can’t compete with me on it?)
- Can I create additional value for the customer beyond what they are considering?
The balancing act in this exercise hinges on needing to both fit in and stand out. You’ll need to be good at the “expected” services, but also have some “unexpected” services to lure in the customer. If you’re light on expected services, you’re likely to disqualify yourself from the running when your prospects are comparing competitor websites. At the same time, you need to have differentiated services that make you stand out in a crowded market.
As you dive into this process and consider the solutions that make up your product suite more closely, you should have an eye on providing the Red Ocean services that are going to gain you market share, services that can beat the competition in a head-to-head match. You should also spend considerable energy looking to create services that are in Blue Oceans, markets that require you to create demand instead of steal market share. In the end, you’ll probably have more of a purple ocean, but that’s still better than only having a red one!
If you are intrigued by the idea of Blue Oceans, but don’t want to read the entire book, there is a great HBR article upon which the book is based, and you can find it here.
The HBR also has a great explainer video.
Finally, if you’re down for some academic reading, you really should get your hands on Michael Porter’s Competitive Strategy and Competitive Advantage. All the “rules” of the Red Oceans were first explained and codified by Mr. Porter and he is commonly known as the father of modern competitive theory. These books fall into a category I often describe as “homework reading,” but they are definitely worth it!
Step Up Your Service Delivery Game
In the South, sometimes you’ll hear someone say, “Every once in a while, even a blind squirrel finds an acorn.” I used that phrase as a salve on my wounds when I told the COO at my last company that I was, in fact, wrong, and he was–as unlikely as it may have seemed–correct.
Before I go any further, I want to be clear: the COO and I had–and still maintain–a fantastic relationship. We were just never afraid to go toe-to-toe and fight for an idea. At my core, I’m a “marketplace of ideas” kind of guy and think the best path forward should win. All that being said, since I’m the one writing this blog and he can’t refute this directly, I’ll say that my ideas won a disproportionate amount of the time. In this particular case, however, he was right and I was wrong.
What was the topic that brought us to fisticuffs and ultimately lead to my stunning defeat? The Service Delivery Model.
At my previous employer, as I’ve discussed throughout the series, we learned a lot of things the hard way and had to make some big organizational changes. We transitioned from people to process-delivered solutions and developed a tight product suite ready for delivery. The next step was taking that product suite to market, which required a guarantee of high-quality service delivery. To achieve exceptional service that was repeatable, our COO’s plan was to implement a Service Delivery Model, in this case ITIL,* though there are others. He presented his case with all these flowcharts and buckets of responsibility that, to me, looked like the most inefficient plan in the world. It was after this presentation that he and I had our “discussion.”
From where I was sitting, he’d presented an onerous process that would take forever to implement, completely stifle innovation, and slow down new product creation. He countered with the stance that without a Service Delivery Model, there was no way to reliably grow and deliver consistently high-quality service. Eventually, he won the group over, we proceeded with the plan, and I quietly prepared my “I told you so” speech.
Here’s the thing, once the process was fully implemented, we got so. much. better. We delivered better products; we onboarded new revenue more quickly; our churn went down; and our support metrics improved. The COO wasn’t just right, he was REALLY right and I was REALLY wrong. Insert foot in mouth.
Why the Service Delivery Model Matters
For so many Managed Service Providers, teams are defined by the type of technology that they work on: the network team, the server team, the storage team, etc. In the ITIL framework, resources are aligned to functional areas. Teams are formed, and each group is assigned a component of the framework.
Service Delivery Components in Action
- Service Strategy GroupThis is the group that I led. We looked at market conditions, trends, customer requests, innovative approaches and other data to inform our approach to the market.We met, brainstormed a new offering, and put that into a Service Requirements document. This document would NOT contain design elements. It would simply lay out the market data, what the customer should expect to see in the product, and what they would pay for this service. That document was then sent on to Service Design.
- Service Design GroupThis is the group that took our Service Requirements document and engineered the actual product. The team would explore off-the-shelf products, custom-made solutions, support costs, new vendors, etc. Armed with this information, the group would tell the Service Strategy team that the product could be built according to the requirements established by the Strategy Team or that it wasn’t actually feasible. In the case of the latter, it was likely because the costs were too high given the expected pricing, it was too difficult to support, or it wasn’t a big enough market to justify the resource allocation.
- Service Transition GroupIf a product met the requirements set by the Service Strategy team and was determined to be buildable by the Service Design Team, the Service Transition team would begin to document the new offering and build the operational processes around the new product.
- Service Operations GroupThis is the group that delivers the offering. They take the operational models developed by the Service Transition Group and put them into practice in a live environment.
- Continual ImprovementThe CI team takes feedback from all the stakeholders and improves the product. If sales volume is low because the product is too expensive or too complex, they find ways to make it less expensive or more simple. If the underlying technology is creating support problems, they identify ways to make the process less problematic. Certain recommendations go back to Service Strategy and the process starts over.
While this seems like a lot of work, let’s contrast it with what we were doing before and, likely, many of you are doing right now:
- Engineering develops new products and services. That means they probably design awesome things that no one wants to buy. Or, solutions are over-engineered and no one can afford the offering.
- Sales and marketing develop new products and services. They run out, sell something, and toss it over the fence for post-sales to figure out. Revenue goes up and support costs go through the roof.
- Sales and engineering collaborate on new offerings. They meet about once a month and absolutely nothing happens because there is either no leader or no process to guide the discussion.
I could probably write a thousand blogs about the nuances of the Service Delivery Model, but I’ll spare you the finer details. What I’ll repeat here is that I was wrong. Aligning to ITIL did not slow us down at all. It gave us a system to follow, aligned our resources to the appropriate functional areas, and provided executive sponsorship to ensure things were moving along at a steady clip. If you aren’t aligned to a Service Delivery Model Framework, I’d encourage you to look into it. You’ll be better off if you do. It may even provide you the opportunity to learn a little humility, as I did!
Don’t Be the Best Kept Secret!
If you spend any time online, you’ve seen articles about “best kept secret” restaurants and travel destinations. These are typically lists meant to expose people to undiscovered places that are great but don’t have a lot of brand recognition. While the ideas are always fun – you really don’t want your managed service provider business to be a candidate for a list like this.
The struggle for any business is figuring out how to break through the noise and get the message out. This is true for the big national brands as well. While the following ideas aren’t necessarily novel, it’s a good list of approaches that we found successful when we executed against a plan and stayed consistent.
Here are four steps to help improve your approach to Marketing:
1. Let the customer tell your story.
Research shows that buyers will listen to a complete stranger before they will listen to your salesperson. That may seem counterintuitive, but you’ve probably seen it in action. People go to Yelp or Facebook all the time to look for recommendations from total strangers even while ignoring calls from knowledgeable sales reps. The guard against this is to let the customer tell your story on your behalf. You have no greater sales team than your own customer base. Go out and interview your customers. Get them to provide testimonials that explain how your services allowed them to reach their business goals. These testimonials should then be distributed across various marketing channels: put a video testimonial on your website, create some written collateral, write a blog about the customer, distribute the story through social networks. Take every opportunity to allow your customers to be your mouthpiece.
2. Get social, both literally and technologically.
While we typically think of “social” as Twitter, Facebook, Instagram, and other platforms, don’t neglect the traditional meaning of social where you encounter people face to face! There are industry groups, community service groups, and technology accelerators in virtually every city. Get involved! Customers want to do business with people that are invested in the community and these type of social activities demonstrate exactly that.
All that being said, you should be engaged on the social media side as well. A good practice is to use each of the various platforms for a distinct purpose. For example:
- Twitter: Distribute your message and engage with others. This is a great channel for your success stories and customer testimonials.
- Facebook: Drive employer branding. Give customers and prospective employees visibility into the company culture. Show them what’s going on behind the scenes.
- Instagram: Show your business “in action.” Whether you’re having a community service day, an internal training event, or a customer event, post pictures to keep your branding top of mind and give people a window into all that you do in the community and for customers.
3. Give something of value for free.
This is hard for service providers because free doesn’t typically help the business, but research proves this is a strong way to build up your customer base. If you’re offering something of value for free, you immediately create affinity for the brand. Your competitors are asking for something from the prospects. If you’re giving instead of asking, it completely changes the dynamic of the relationship.
4. Start with your customer’s needs first.
Too many sales people and organizations go into a sales call pitching instead of seeking first to understand. That means prospects are left sitting there saying to themselves, “I see why this is good for YOU, but how is this good for ME?” Your marketing message absolutely must start with the customer needs first. Demonstrate an understanding of their position and struggles, and then offer your services as a solution.
While these are just a few ideas improve your marketing strategy, you still need to do a good job Marketing 101:
- Who is your target audience?
- What do you want them to know about your business?
- What would you like them to do: Take a meeting? Attend an event? Sign up for a demo?
- Where do you find prospects like this? How do you locate them?
The art of Marketing is continually evolving. You must diligently test and constantly iterate on your approach to improve results. Simply providing a great service and excellent customer support is not going to be enough. You have to let your audience know about your company.
The Customer is the Hero of Your Story
May the force be with you. This line from Star Wars was a central part of many childhoods. Now, it is part of the childhood of a new generation of moviegoers, as the series has renewed in the last few years. When the new episodes came out and immediately connected with new viewers, I thought to myself “what makes this series so great?” While there are many theories, I think the shortest, and arguably best, answer is simply that it is truly relatable and timeless. Specifically, Star Wars is the classic hero tale, a storytelling device that has structured myths and stories for centuries.
Mythologist Joseph Campbell first detailed the “hero’s quest” that underscores this type of story. In the hero quest story, the hero leaves her ordinary world and ventures into a new place. She survives a series of ordeals and trials to prove herself, is granted some sort of treasure, and returns home to share her fortune with those that were left behind. You see this story play out in Star Wars, the Lord of the Rings, Harry Potter, and so many other popular tales.
It’s now time to think about crafting a story that connects with your audience and best communicates your unique solutions and everything we’ve discussed so far in the series. You might not sell any action figures, but you’ll definitely sell more managed services! So, how do you do this?
How do you capture the elements of the hero story to advance your business? The answer is in breaking our tendency to focus on ourselves. We tend to want to be the hero of our story, but the real hero should be our customer. Your company has done some great things and it is understandable why you would want to focus on those things. The key point to remember is that someone, your customer, was the beneficiary of your services and accomplished some kind of business goal. Your story should focus on that. If we tweak the elements of the hero tale a bit, we can think about our conversations with our customers in this way: they are in an unfamiliar land, facing many challenges. How can we help them succeed and return home with fortune? Here are some helpful tips:
- Start your story with what is important to the customer, not to you. Too many Service Providers start telling their story about technology. Instead, start with your customer as the hero and then begin to consider what is important to them and their future success. Think about what their business model is, how they make money, how they go to market, what their competitors look like, and what changes their industry has experienced recently. You need to understand where your hero, the customer, is on their quest so you can determine how to best help them.
- What are the macro-level trends that are impacting their industry? In the hero tale, the hero faces a series of trials. The hero in your story, the customer, is facing many trials in terms of how they use and consume technology. Macro trends around public cloud, distributed workloads, and an ever-shifting technology landscape create challenges. Your customers struggle with new consumption models, with the integration of the public cloud into their legacy computing models, and with understanding what new technologies to embrace. They are looking for someone to help them overcome these challenges. Luke needed Han, Chewy, Yoda and others to come alongside him to achieve his goals. Your customer is looking for similar help. (And, if you happen to have a Millenium Falcon, they would probably think that was cool.)
- Consider what business challenges this may cause for our hero. All of these trials create business challenges for your customer. How do they embrace new models while preserving their current investments? What if they pick the wrong solution and it hurts their business? At this point, you have identified your hero, you have considered what industry trends are impacting them, and now you must consider, specifically, the business challenges they face. We all knew Luke was going to have a showdown with Vader; it was inevitable. What are the inevitable business challenges your customer must overcome?
- Show your customer how you help them address this challenge. Now is the time for you to be the Han Solo and Chewbacca to your customer’s Luke Skywalker. You have a broad range of expertise and knowledge that you can offer to help your customer address these challenges. While your customer has been busy on their hero quest alone, you have been helping other customers overcome their trials, so you have valuable experience to offer. This is a key point—your customer is looking for you to help them. You have the knowledge and experience they so desperately need.
- At last, you can talk about the features and benefits. So many Service Providers want to start here, with the features and benefits they can offer. But, without truly understanding the trials your customer is facing, you don’t know which of your solutions are most relevant. By understanding what they are trying to do and accomplish, you will know exactly what tools you can offer. Han, Chewy, R2-D2, and C-3PO played different roles and brought different tools to the quest. In the same way, you have many solutions you can offer. Now that you understand their specific needs, you can recommend specific, tailored products and solutions.
- Everyone goes home with treasure. The last element of the hero tale is that the hero returns home with treasure for the people she left behind. If you help your customer overcome their trials, they will be more successful as a business. If you align your company to the goal of helping your customers become heroes, then your company will thrive. This entire narrative becomes a virtuous cycle, in that when you help one company, that adds to your store of knowledge and expertise. This cumulative knowledge helps you show other customers how you can help them overcome their unique challenges.
You have a great story to tell, but, resist the urge to make your company the hero of the story and instead make your customer the hero. You do this in how you market, in the conversations you have during the sales process, and how you engage with both customers and prospects. Let your customer be Luke, the hero; you can be the Han, Chewy, or Leia that helps the hero accomplish their goals.
Once you become proficient at telling your story, with the customer as the hero, you’ll be better positioned to solve their problems and win their business. You may not have a blockbuster movie on your hands with lucrative merchandise deals, but you’ll likely expand your customer portfolio as you become the missing piece they need to complete their quest. Then, you’ll have some spare change to buy a ticket to the next great Hollywood blockbuster story!
Some great articles about creating powerful stories:
Rome Wasn’t Built in a Day
At any given time, most cities have an ongoing infrastructure project that seems to take longer than necessary. Snarled traffic, endless lines of cars, and the ever present orange barrel. A sign has started appearing in those situations. It says “Rome wasn’t built in a day. If it was, we would have hired those engineers.”
It’s clever way to remind people that progress requires patience. Similarly, great service provider businesses aren’t built overnight. They require continual improvement and commitment to doing the hard things well. At some point, you simply have to get started. It may be challenging. But the results will be worth it.
You don’t like the congestion from all the construction, but you sure love the quick commute home on fresh road when it is done.
The process of transforming your Service Provider business can really be broken down into three broad categories.
- Market differentiation: understand your differentiated story in the market.
- Sales transformation: ensure your sales team is having the right conversations with the right people.
- Operational efficiency: grow revenue without a proportionate increase in operational overhead
The market is becoming more crowded and everyone seems to be telling the same story. You need to know why you are better and tell that story in a way that connects to your target customers. Spend time talking to your current customers about why they choose you. Do some market research about how your competitors are positioning themselves, and reflect on where you think you excel by comparison. Once you gather all of this, you’ll be able to craft a story that illustrates why you are better and different than everyone else.
Your sales team must be able to show the customer a way forward. They need to paint a picture that shows the customers a vision for the future that is attainable, with your help. Your prospective customers are looking for a path forward. They don’t know where they need to go and they don’t know what they don’t know. Your sales team can be effective simply taking orders and providing quotes. But, that isn’t the way to grow. You’ll need to be able to lay out a vision for your customer of where things are going and how you can help them get there.
You’ve hired more people, but you can’t seem to break through to greater profitability. For your business to grow and scale, you are going to need to pivot from people-delivered services to process-delivered services. Along the way, you should be looking to automate anything that can be automated. Processes and automation allow you to drive efficiency in your operations. If your costs and your revenues are growing in lockstep, this is where you need to focus your time. You need to create operational leverage so your can grow your revenues at a disproportionate rate relative to costs of goods
None of the above are easy. I get it. But, they are worth it. If you want to build long term value in your organization, you need to take on these initiatives. There is typically little enthusiasm for big infrastructure projects when they are proposed–too expensive, too ambitious, too disruptive. But when when the projects are done and traffic is flowing smoothly or the light rail system runs on time, I’m sure residents couldn’t ever conceive of NOT doing a project that yields those results. In the same way, your team will wonder why you are putting them through this process of improvement, but I promise, they’ll enjoy the results at the end!