It’s a Twelve (12) Month Journey to become a solid Cloud Service Provider…
With Pubic Cloud spend accelerating to $216B by 2020 and the urgency level rising for value added resellers (VAR’), IT Solution Providers (ITSP’) and managed service providers (MSP’) to truly add sustainable monthly recurring revenue (MRR) to their overall business mix. It’s critical to make the move to address the market shift that’s well underway and heading up and to the right.
But in order to exploit the opportunity there is one (1) small problem that all providers have to overcome - it’s a twelve (12) month journey to become a solid Cloud Service Provider (CSP). What we are talking about here is an organization who’s strategically committed to creating, driving and growing a sustainable long-term MRR business.
Unfortunately, that means that if you commit to the journey today, you won’t be able to grab your fair share of this year’s $114B in public cloud services spend. The theme here is – now is the time to move as the journey is long and everyday you’re not generating sustainable recurring revenue your business is eroding.
The largest impediment facing the community today is easy to identify – most service providers falsely believe they are already equipped and prepared to make the move to a balanced MRR business. They believe that the transition towards becoming a truly monthly recurring revenue (MRR) friendly business is straightforward and does not require a huge effort.
I can assure you based on our work and observations that the transformation required is not straightforward, nor easy and does require serious rigor & commitment.
All journeys begin with that first major step, which for most organizations is to look inward and determine if they want to enter the cloud solutions space and truly make MRR a sizable portion of their business. Spend some serious time thinking through this commitment – it needs to make sense and you need to be ready for the next 26.2 miles. It’s not a sprint, it is really an uphill marathon…
Next, you need to commit to perform the work necessary to become a solid player who is capable of driving net-new revenue and profit in a way that may seem unnatural. It’s tough to see that $400K deal that you’d traditionally collect on in perhaps 58 days, depending on your DSO and milestone payment schedule, now carved into 12, 24 or 36 monthly payments – it’s just not in harmony with the business you’ve built. Also, don’t forget there is an investment component here that can’t be ignored.
Many of the folk’s we’ve worked with have had to confront the simple truth that change is hard and they hate it, yet change is necessary to ensure they exploit the opportunity that cloud and recurring revenue presents. In most cases moving to a recurring revenue friendly framework requires altering some, if not all of the following:
1. Your Business Model
2. Your Financial Model
3. Your Sales Model and Plan
4. Your Marketing Model and Approach
5. Your Operating Model
6. Your Packaging and Pricing Approach
Sometimes the alterations and changes are minor and require very little work, in others a major overhaul is in order which can be truly gut wrenching. In all cases, the changes are valuable, warranted and must be undertaken to capture and exploit the long-term opportunity.
The biggest thing to keep in mind is that this is not a game you can enter half ass and hope to succeed. We’ve seen too much time, energy and money wasted when organizations view their entry into the space as opportunistic rather than strategic. Tough to hit your blended gross margin objectives if you don’t construct a solid model and focus serious attention on proper packaging and pricing of your solution set.
You’ve got to be regimented and disciplined. It’s vital to move, but you must move at a pace you can manage so you can maintain your core business while preparing to drive new business with new customers in a new way.
You need a deep understanding of how the shift in revenue from transactional to a monthly recurring revenue stream will impact your top line, your gross margins and your cash flow. If you mark to market you’ll be looking at shifts in revenue from on-premise to cloud that will grow to 24% of IT budget spend by 2020. No one can handle that shift without being prepared to move because this is a “transferal of wealth” that can’t be recaptured from your traditional competitors – the transactional on-premise pie is large, but it’s shrinking.
You need to understand that the approach to selling and marketing within the cloud and monthly recurring revenue space is much different than the methodology you may be comfortable with today. Many times sales model changes are required and in almost all cases a dramatic alteration to your sales plan is required.
Also, adding inbound marketing capabilities is important as the velocity required to identify and acquire new clients is essential because you only want to move on-premise deals to the cloud when required by your client, so finding net-new customers is critical so you don’t artificially erode your core pipeline.
As you can imagine this post is just looking at the tip of the iceberg – there’s quite a bit more below the surface…
Is the Journey worth the Trip?
Gartner recently reported that we’ll see a $1 Trillion Shift in IT spending to Cloud over the next five (5) years. The shift from traditional spend on things such as servers, storage and software will move to public cloud and software as a service (SaaS) purchases.
As mentioned earlier, the amount of money IT will spend on public cloud services this year is $114 billion, and will grow to $216 billion in the year 2020, according to a recent report released by Gartner. The shift is occurring at a rate of about 2% a year, moving from traditional IT data center spend to public cloud service spend.
On-premise IT spending will still be predominant for several years. Essentially traditional spend will remain flat, as cloud in all its forms, will continue to accelerate and grow on an annual basis.
With $1 trillion moving to public cloud services over the next five (5) years, it is causing the most dramatic disruption in IT spending in over twenty-five (25) years. Cloud spending has now become a notable percentage of IT spend and will grow, as mentioned earlier in this piece, to represent 24% of the IT budget by 2020 according to Ed Anderson, Gartner research vice president.
In summary, it’s worth the trip…
So What Now?
As mentioned earlier, it’s important to make the commitment and then to assess your current readiness to make the move at a pace you can manage, then analyze and understand the gaps that always exist – they’ll seriously hinder your success in transforming if you don’t know they exist.
Then you need to apply the proper approaches, content and tools to begin what always takes most providers twelve (12) months – crossing the monthly recurring revenue chasm.
So with the journey typically taking providers twelve (12) months - I implore you to get moving today…
Keep Calm and move on to a Monthly Recurring Revenue friendly business model today...
Hope you found this brief insightful and as always, I’d be interested in your feedback. Please stay tuned for my next brief.