I remember the first time I sat down with a leasing company so it could explain to me how companies had the option to lease videoconferencing equipment, turning the huge capital cost into an affordable monthly payment.
I thought the concept was great—not much different from a mortgage or a car payment. I knew that more companies could afford “X” thousand dollars per month versus hundreds of thousands of dollars upfront…especially for a depreciating asset.
Excited by the idea, I spoke to a few integration firm owners and, to my surprise (or maybe not), I got a lot of blank stares—even some pushback. Many integrators didn’t see the value or need to offer such a program. (Note: This was about 10 years ago.) As time has passed, we have obviously seen a rapid evolution toward services in the technology space. Service is a new profit center for integration, and Software as a Service (SaaS) is the next frontier of revenue centers for tech companies.
Essentially, integrators need to start looking at ways to package everything and anything into a consumable solution that can be “subscribed to,” rather than purchased on the capital-expenditure side. Is your business embracing Everything as a Service? If not, have you considered it?
The first challenge for most companies is rethinking business models. From what you sell to how you sell and compensate for it, anytime we sell something in the form of small, recurring revenue, it affects business cash flow dramatically. These services usually offer much higher margins as compared to integration sales, and the revenue is recurring. As you build it, it becomes more of an annuity.
Industries of all types have embraced this model, whether it’s leasing or whether it’s offering things like HR as a Service or CFOs as a Service (where it isn’t equipment at all but, rather, people doing fractional jobs).
In our industry, countless deliverables could be sold as a service. One that comes to mind is digital signage hardware, content and management; videoconferencing is another. You can lease equipment and sell managed services for rooms, analytics and maintenance. Staffing is another example. In fact, that is probably the one that the industry has done best for the longest time, and it’s still a real opportunity, allowing fractional use of team members to deliver needs to multiple customers (paid for on a recurring basis). These are opportunities to move to an as-a-service mindset.
Perhaps the biggest challenge in all this is the “how.” In this case, we understand what it is and why we need it; however, for businesses that have done things in a capital expenditure (CapEx) way for so long, the transition isn’t easy. The initial transition feels like (and might, in fact, be) a big step backward for many integrators. However, it is one of the most important transitions in our industry.
The transition should be done in a phased manner. Many of the integrators I speak to that are seeing large increases in service business have done it year after year, increasing their investment and commitment to selling services. If you’re just getting started, you might need to accelerate a little bit faster; however, moving your investment toward sales and delivery of services is what I see working best. (For example, moving 10 percent of revenue in one year and 35 percent in three years.) That means you need to build a compensation program that incentivizes sales for selling more services. It also means that you need to spend time packaging your products as services. That will be a little bit uncomfortable for many integrators…but you won’t regret having made the transition.
I remember when the operational expenditure (OpEx) model came onto the scene. I remember our industry rejecting it or, at least, hitting “pause” on its implementation. Now, I see a scurry toward Everything (and anything) as a Service; however, I don’t see our industry doing enough…yet. To stay in the game, it’s important to start considering “as a Service” for just about anything you sell.
Need help getting started? Make plans to attend NSCA’s second-annual Pivot to Profit event, scheduled for September 28 to 29 in Chicago IL. We’re taking attendees from “why” to “how” when it comes to implementing managed services. You’ll learn what you need to know about back-office financial considerations, paying commissions to salespeople who sell managed services, how to reposition your marketing efforts during the switch to services, how and why to sell “Everything as a Service,” and much more. Learn more at www.nsca.org/p2p.