The Utility View – March 2007
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An Alternative to "Do-it-Yourself" Managed Services

In 2000, managed services was introduced to the small and medium business (SMB) solution provider community and has since seen increasing adoption as a means to increase profitability, revenue, cashflow and ultimately business value.  As easy as this statement is to make, achieving on the promises of managed services has been much more elusive.    

Fast forward to 2007, and much of what has been recently discussed as new to managed services by the various vendors, consultants and now even distributors is in fact variations of the old, “Do-it-Yourself” programs that have been in practice for several years.  Even the latest trend of providing better means to consume MSP technology, like software-as-a-service, basically reduces the impacts of failure, but does nothing to increase the probability of success.

A critical oversight by many small solution providers (under $2M in revenue) embarking on managed services is the realization that this represents a start-up business initiative.  How many times have you heard a technician state they can build a NOC or salesperson say they can sell managed services? 

If it was only that easy!  First, they need to understand that the average rate of start-up business success is less then 20%, which would be a reasonable estimate of the MSP market today. Secondly the fact that the SMB market (5-100 users) is the most difficult segment to target; requiring a sophisticated business plan, particularly in light of the emerging utility service model to address technology over-spending and under-utilization by businesses today.

So, if 8 in 10 MSPs are failing and there are no new channel initiatives or models to spark any improvement to this rate of success, what are the alternatives? 

One new alternative for solution providers is the affiliate franchising model.  Affiliate franchising occurs when an existing business decides to partner with a franchised business to take advantage of the brand and proven operating system to offer a complimentary, more complex set of services.  Jeff Elgin’s recent article in Entrepreneur.com entitled “Adding a Franchise to Your Existing Business” discusses the rising trend of affiliate franchising.  He cites Radio Shack® as an example of this model, whereby business owners are recruited on the idea of synergistic expansion within a current successful retail operation.

What are some of the key components of the affiliate franchise model for managed services versus the traditional view of IT service franchises by the channel? 

• Branding – Critically important to the channel, the affiliate model provides the best of both worlds with both the existing and franchised business brands co-existing.  This is not unlike how solution providers have been traditionally associated with a key vendor’s brand.
• Territory – Exclusive market with all marketing and sales activities (local and national) driven to the territory owner eliminating any channel conflict.
• Success rate - 92% of new franchisees pass the critical first 5 years of business (4 times better than independent business).
• Complete business system – Includes complete front and back-office support for sales, marketing, administration, network operations center, helpdesk and service management with 80-90% of the service catalog delivered remotely.
• Marketability – Being part of a national service organization with standardized business practices, economies of scale and brand results in the provider’s business becoming more valuable and marketable.
• Practice areas – The breadth and depth of services allow solution providers to move beyond technology operations into emerging areas such as Web communications and business management – the “next” key areas of growth in managed services.
• Vertical channels – Provides a means for other SMB service organizations, such as copier/printer dealers, telecommunications resellers, Web agencies and accounting/CRM integrators, to break into managed services.

For solution providers, as well as other SMB service organizations, affiliate franchising provides an interesting alternative to explore.  While the “Do-it-Yourself” approach may appear easy, think about it the next time you are at Home Depot® being convinced that dry-walling your basement is not that difficult with the right tools and training!

About The Utility View™

The Utility View (TUV) is a monthly thought paper series on current trends in the managed services industry and the emerging utility services market. TUV Vision articles specifically address the service provider community to keep them “in the know” on the channel’s titanic shift toward a more service-centric model. TUV Insight provides small and medium businesses in-depth information on how to better understand and utilize technology and actually make it work for their business. Questions on any of our thoughts and opinions should be directed to tuv@theutilitycompany.com. To receive The Utility View alert please register on our Website.

About The Utility Company™

The Utility Company is the leading provider of information technology as a utility to small and medium-sized businesses, delivering the required hardware, software and service for a monthly fee per user.  Our Connected Office™ service suite empowers people to properly leverage technology to operate, communicate and manage their business more effectively to increase productivity, performance and ultimately profit.  Our customers are supported by the Utility Service Network delivering on-site service and business-technology consulting across North America – technology sales, professionals and service organizations can review the Beyond Managed Services™ franchise opportunity on our website.  Learn how to make technology work for your business today at www.theutilitycompany.com  

Copyright

Copyright © 2007 The Utility Company.

All rights reserved. This document contains information intended for the exclusive use of Utility personnel, strategic partners and potential investors. The information herein is restricted in use and is strictly confidential and subject to change without notice. No part of this document may be altered, reproduced, or transmitted in any form or by any means, electronic or mechanical, for any purpose, without the express written permission of The Utility Company.

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