HAVING TROUBLE GETTING YOUR CLOUD PRACTICE OFF THE GROUND?
Perhaps it’s your business model! Many times when we review the findings of our automated software-as-a-service platform’ readiness results we see a very familiar picture – the business leaders are not prepared or are unaware that a change is required in their business model to begin moving the needle.
We see it time after time, all the money, energy and effort focused on sales and engineering enablement activities can’t overcome their legacy business model. It’s tough to make the changes necessary to create a solid Cloud Services practice, while ensuring you don’t erode your core transactional run-rate. But I can assure you a change in your business model is necessary and is the 1st Step you must take on your journey towards a thriving Cloud Services business.
In fact, there are several steps (we’ll cover the others in subsequent articles) you need to make prior to being able to leverage the fine cloud enablement training the vendors and distributors have assembled to aid their channel partners. The approach we prescribe ninety percent (90%) of the time to ensure you’ve set the stage and dealt with the foundational issues that adversely affect launching or growing a new business initiative. The steps include:
Obviously, you don’t need to make radical changes and unnecessarily disrupt your business – remember, incrementalism is the new big hairy audacious goal (BHAG) these days. A key point in all this is to begin slowly disrupting your business before the world and your clients slowly move away from your traditional consumption models.
As stated, the focus of this brief is the power and impact of altering your Business Model. The single biggest factor is coming to grips with the changes required to truly deal with and implement the mindset, skills, processes and systems required to deal with monthly recurring revenue (MRR). Customers are pushing more and more for a consumption approach that allows them to pay monthly and most spreadsheet laden
Value Added Resellers (VAR’s) and Solution Providers will struggle with the reality of billing and tracking MRR once your Cloud Services practice is up on plain.
Beyond preparing for a true monthly recurring revenue model there are three (3) other realities you need to prepare for in the short-run. The realities include:
Revenue will transition from transactional to recurring and it will impact you…
Gross Profit will be squeezed which will impact your blended gross margin…
Cash Flow impact will occur as you go from being paid in 45 – 60 days and move to being paid over 12, 24 or 36 months…
The impacts are real and in most cases can’t be avoided, so you need to be prepared to deal with them as you grow your Cloud business over the first year+. Just recently, I had a very interesting and lively discussion with the CEO of Atrion Networking, Tim Hebert about the financial realities of spinning up a new line of business and he had a great example from a session he attended a few years back where a framework created by Channelcorp was presented. It gives a great high-level timeline to help you set realistic expectations to build-out or grow your Cloud Services business.
Let’s take a look at Channelcorp’s timeline framework to create a traditional transactional services business, which can be easily stated as 3 – 5 – 7:
Three (3) Quarters to create business construct and complete build-out…
Five (5) Quarters to get to breakeven status…
Seven (7) Quarters to get to cash-flow positive…
A Cloud Services business created and designed to drive monthly recurring revenue takes on a composite that looks more like 5 – 7 – 9:
Five (5) Quarters to create business construct and complete build-out…
Seven (7) Quarters to generate accounting profits …
Nine (9) Quarters to generate positive cash flow on a cumulative basis…
These look to be well thought out timelines and I applaud Channelcorp on their work, and Tim Hebert for once again honing in on something that is truly valuable and impactful.
The good news, in spite of the time and investments required to build a valuable business, is that once you create a sizable monthly recurring run-rate, your business will never have looked so strong and you’ll actually love that you’ll be making money while you sleep.
As you can imagine, it’s all about getting your plan and model solidified, while ensuring that leadership is committed to systematically driving Cloud service solutions that differentiate you in your client’s eyes.
Hope you found this brief insightful and as always, I’d be interested in your feedback. Please stay tuned for my next brief on the importance of altering your business model and not having your eyes wide shut. Our next Brief will explore Sales Models and Plans in a Cloud Services world.
(90%) of the time to ensure you’ve set the stage and dealt with the foundational issues that adversely affect launching or growing a new business initiative. The steps include:
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