Vlad Mazek – Vladville Blog

In late 2009 through early 2010 we’re seeing an unprecedented death rate of technology businesses involved in SMB (VARs, MSPs, technology experts), traditionally reseller-friendly companies going direct and the rapidly changing set of rates (from netbooks to computer service to “app store” software) for technology. The five part series titled “Death of a Services Salesman” will explore these trends, the causes behind them and hopefully give some clarity to the many that are rightfully asking: Are the good times in technology services gone for good?

When did it start slowing down?

The demand for IT services in SMB actually slowed down before the release of SBS 2008. I remember conversations with my partners rather vividly because nearly everyone back then thought the temporary slowness was due to the coming releases of Windows 7 and Small Business Server 2008. If you go back even on Vladville or Karl’s blog you’ll see a number of posts talking about how SBS 2008 might be the last server you ever sell.

Yes, the hindsight is 20/20 but it clearly marked the end of big deals in SMB. Which brings me to the 4th reason why the SMB solution providers are dying: thinking that it’s the economy.

It’s not the economy…

It’s not the economy. Or more specifically:

Problem: It’s the economy you remember.

That economy is long gone. It ain’t coming back. Much like dialup Internet service providers aren’t posed for a comeback, or the days of AOL keywords, technology that gets obsoleted over time is not closely tied to the general economic swings.

Critical components of every economic system are supply and demand. And supply is affected by substitutes: items that buyers are willing to purchase as an alternative to your product/service that produces a similar benefit. Strap on your seat belt, we’re about to travel through time:

Kicking the Delorean up to 88mph..

Welcome back 1997. Your desktop cost $2,000. Your laptop cost $3,000 and weighted as much as a briefcase will in 2010. Sony introduces Vaio F505, a slim light weight laptop that costs $4,000 and with a 10” screen represents the future in which most computers will be sold with slim 10” screens.

You need to connect your business to the Internet. You’ve got a choice of a dialup connection with Exchange 5.5 doing ETRN, a dedicated ISDN (one channel or two) or a T1 or better starting in four figures a month.

It’s time to get rid of that Novell server and try this new Microsoft NT thing. Problem is, you need to hire a network engineer and those start at $40,000. Business is business, time to invest in the company and use the technology to get to the next step. So you hire that engineer, do some situps, do a 100 pushups a day in your office and one day you’re strong enough to lift a copy of Computer Shopper.

You need a server, a switch or a hub, a CSU/DSU, a tape backup system… Wait, what’s that? A company that can figure out all this mess for me and possibly save me thousands of dollars?

Back to the Delorean and to 2010:

Problem: The “value” that VARs used to deliver (that of technical expertise) is no longer deemed to be of premium value. Our rate sheets are from the days of $4,000 laptops, $2,000 desktops, $10,000 server deployments. Those times are over.

We no longer need a company to contract a purchase of Internet access complete with a CSU/DSU, router, switch, firewall. We can now go down to a Verizon or Sprint store and they’ll hand us Internet that can fit into our pocket and be shared with 5 other people.

You no longer need an MCSE to offer technology advice.

Newspapers are dying.

It’s a different age all together.

A single engineer can manage thousands of workstations from a remote office (or a remote country at a far lower rate) and the opportunities for a network engineer went from every company needs one to only Fortune 500 needs a few.

And much like the Skynet system in Terminator, the more perfect the automation system of controlling all these devices and networks gets, the less need there is for a human being to watch after every one of them. The machines are controlling the machines.

Best Practices Change Over Time

If you’re in break’n’fix, “trying to go to managed services” is an opportunity that has passed you by. As discussed in the previous post, the competition is fierce and it’s coming down to competition on price.

The services we used to rely on servers for have gone to the clouds. The workstation has been replaced by the laptop and the laptop has been watered down by the netbook. The future is on the touchscreen. The last person still serving an engineering firm that needs to have a local file server for really large CAD drawings will turn off the light.   

The best practice of where files sit, how they are backed up, who can access them and who controls who can access them has changed.

Problem: The mere fact that we’ve left the days of technological entropy and further adoption of technology no longer causes further spending and chaos is amazing. The age of highly compensated engineers has been replaced by the age of Geniuses working in retail stores advising you which of the 5 computer models is right for you. Unfortunately, for most people the difference between a professional service and a $10/hr Genius is indistinguishable.

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While the temporary recovery in the economy and the technology refresh cycle may give some hope that the things are finally turning around, the reality is that the new economy with all its new technology, automation and alternatives has permanently changed the cost structure and the expectations small businesses have of their technology.

When you no longer need a technology department because you can get one in an Apple or Verizon store then you no longer need a CIO and you no longer need a VAR or an MSP. Most of the VARs and MSPs were established on building and managing networks for companies with under 100 employees. With that demand disappearing, so does the need for many technology companies and it’s the #4 reasons why IT solution providers in small business are disappearing.

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Now, the beauty of business is that it doesn’t have a life limited by age. It has a life limited by imagination and opportunity. So the days of building and managing networks is not enough to sustain a growth or revenue levels – so what?

We’re not selling dialback ISDN plans in 2010, are we? Are we crying to have those days back? Heck no, the opportunity for developing solutions on top of high speed Internet is far greater than the markup we used to get on a single service solution.

The connectivity and automation have brought us a global opportunity, not just one limited by the amount of time we’re willing to spend in a car to reach a client. As have tastes – you no longer need a flight and a round of golf to make a deal.

While the world will always need a bicycle shop and a VCR repair man, the world moves forward for a reason – things get better! And with it, we have to as well – because there is a lot more money to be made and much more interesting problems to be solved.

Join me tomorrow for the final post in this series, exploring the further Death of a Services Salesman and what is coming out of it’s ashes.

In late 2009 through early 2010 we’re seeing an unprecedented death rate of technology businesses involved in SMB (VARs, MSPs, technology experts), traditionally reseller-friendly companies going direct and the rapidly changing set of rates (from netbooks to computer service to “app store” software) for technology. The five part series titled “Death of a Services Salesman” will explore these trends, the causes behind them and hopefully give some clarity to the many that are rightfully asking: Are the good times in technology services gone for good?

What’s “local” anymore?

Before I even state the extremely obvious challenge SMB IT solution providers face from all fronts, I’m going to share the answer nearly all the providers in this space have given me in 12 years in this industry when asked how they build their business: referrals. The word of mouth, do a good job and hope the client is happy enough to recommend you to someone else. Or even ask/incentivize them to do so. Or join a business referral network.

Problem: There is no such thing as “local” anymore. The competition for IT services is now global.

Talk about the blue ocean strategy backfiring: Where people hoped they would find unlimited opportunity of untapped markets, they found more competition from more aggressive predators. Every day I am greeted to a spam bucket full of Indian programmers by the pound and by the minute, call center outsourcing, temp labor and skilled workers waiting to work for the fraction of what anyone would expect in United States. But do you want to know what the #1 predator in the blue ocean is?

Problem: Our suppliers are now our direct competition.

Competing against suppliers

This is nothing new, we’ve always known that large box makers have been direct. Some (Dell) have had direct as a motto and principal value. They always wanted a direct relationship with the client.

What is new in this equation is that these companies now deliver services. It was easy to ignore them when all they did was ship equipment – but now the equipment is shipped with the maintenance service already purchased, from warranty to monitoring to offsite backups to antivirus. The whole purpose the VAR industry served – that of taking something raw and turning it into a functional business tool that can deal with the real world networks (appropriate software, antivirus, licensing, configuration) is now done by the manufacturers.

The whole “MSP Revolution” was short lived, with Dell’s acquisition of Silverback the same core value MSPs were offering now became a checkbox on Dell’s site. And they aren’t afraid to make a phone call or even hold an order back until they talk to you about managing the purchase you’re about to make.

Competing against larger providers

In the previous blog post I discussed the strength in numbers.

With the recent economic problems caused in part by implosion of the banking system, the word “trust” has almost been wiped out of the dictionary. With all the (possibly criminal) activity the banks have committed, there aren’t fewer people doing business with Bank of America – the “too large to fail” is somehow less of a concern than the thousands of small banks that are small enough and failing in large numbers. It’s not fair but it’s business and the purchasing criteria has changed.

At Own Web Now we do business with a lot of managed services providers that service multiple states – not just two or three but a dozen – and they are the ones that are growing fastest. It could be that they are just aggressive by nature – but it’s more likely that the marketing message of “we are larger and more resourceful than your local mom & pop IT shop” resonates with the business owners that are spending their money on technology because their ambitions are larger than just the walls of their office.

Competing against the cloud

I’ve written hundreds of blog posts about this point and it’s something I don’t have anything new to say. Every software powerhouse has or is working on a cloud strategy that goes direct. It is so powerful that many service providers are forced to hand over their clients for 6% commission of $5.

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Some people live to compete. The rest die because they refuse to.

That’s at least my opinion. People that sat on the sidelines waiting for the “cloud” to materialize are now dying. Not because the cloud is taking their clients, but because their existing clients have downsized or closed doors and it takes time and effort to build a marketing and delivery system built around the cloud.

With nearly unlimited competition from suppliers and other providers, it’s harder to commit to larger marketing & sales efforts which inevitably allows the loss of client base to outpace new business.

The most amazing (to me) part of ignorance comes from the providers that have been around for a while, improved their marketing, their sales, their procurement and their reputation in the industry – but haven’t grown as a result of it. If you’ve improved everything but your bottom line that’s not success – that’s churning.

Thinking that local is a closed environment is the #3 reason IT solution providers are dying. I find many people face this problem with an immense sense of denial – even when confronted about their local competition most will say that they have less competition now than ever before (because they only view the people they can see – that are now bankrupt – as competition). The economy and the demand for services has changed. Sitting back and waiting for it to change back is an option, sure, but doesn’t it make more sense to just compete at a different level?

In late 2009 through early 2010 we’re seeing an unprecedented death rate of technology businesses involved in SMB (VARs, MSPs, technology experts), traditionally reseller-friendly companies going direct and the rapidly changing set of rates (from netbooks to computer service to “app store” software) for technology. The five part series titled “Death of a Services Salesman” will explore these trends, the causes behind them and hopefully give some clarity to the many that are rightfully asking: Are the good times in technology services gone for good?

Thinking small for small business..

Personally, this has been my biggest failure as a business owner. I did not recognize when OWN matured past my own ambitions and agenda and I didn’t get aggressive enough quickly enough. This is an issue I find many of the people in the SMB solution space face and it’s the #2 reason contributing to the death spiral we’re seeing out there among solution providers:

Problem: We’re a small business too. Just like you. So we know what it’s like and are better positioned to help you!

What may seem like a very warm familiarity pitch turned out to be fatal during the downturn in which many entrepreneurs faced their own mortality. Now the taste has changed. Now people want larger brands. Established companies on a solid ground. Having been burned by everything from Circuit City to local branches closing, people want a brand!

One of my friends and most successful MSPs out there (ARRC) has a HaaS division called CharTec through which they make it possible for managed services providers to offer computer and network systems (everything from a workstation to a phone system) for a low monthly fee as a subscription service. And guess what, they sell inferior (by spec) HP workstations over OEM ones for more because some partners have a challenge selling “white boxes” – now mind you that these aren’t white boxes at all! – but the sentiment has changed.

Problem: When people are not just willing but persisting in choosing even an inferior solution over the one you recommend because they are more inclined to trust the big brand than you, your days as a solution provider are numbered.

We build and manage SBS and SBS networks..

This has been the pledge of allegiance for small business solution providers for the past decade. When Microsoft released EBS (mid-market version of SBS) there was a lot of rejoicing about how this product will revolutionize the midmarket and make technology there so much easier to manage and administer.

Then Microsoft killed EBS. And they recommended replacing it with Microsoft Online Services (hosted Exchange/SharePoint). Double ouch!

Problem: What Microsoft knows, and the rest of it’s providers seem to have only tepid willingness to accept, is that people are no longer see value of owning their own local area network.

But take your average solution provider than half their product sheet is filled with high margin junk to build a network that can serve thousands and thousands of people with the uplink speed that wouldn’t even provide for a good Xbox game. And when that fails people turn to their iPhone/Android and wonder – which one was a good investment? Which one is working for me now?

The tastes have changed.

The needs have changed.

Back in the 90’s we needed a local area network because there was no high speed network in our pocket. We needed a server because we couldn’t keep a ton of data on our workstation because there was no efficient way to back it up. We needed Active Directory because there was no way to control and restrict access to applications and documents if you could browse to them.

Now all of that can be done with a cell phone and a free web app. If you want to be fancy, you can spend a few bucks a month and get one with “enterprise” features.

Fatality Check: My MCSE exams had roughly a quarter of it’s questions covering permissions, inheritance, which options “deny” permission would override – and in 2010 thinking that you needed an engineering certification to grant or deny access to a document would get you laughed out of a job interview.

Problem: If people aren’t willing to pay to build a network, what makes you think they will be willing to pay to have one professionally managed when even Microsoft has given up on it?

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When it comes to small business solutions, service providers tend to represent small (company) but pitch big (solution)! The client has an option of small, local and expensive over big, global and affordable.

This is the second reason we’re seeing a rapid decline in opportunities for small business solution providers. You don’t have to look far to see who wins out in that equation over the long term – Walmart, Home Depot, McDonalds, etc. Now, as soon as I figure out how to make a Versce or Ferrari brand out of technology solution providers I’ll let you know, in the meantime join me later this week for the other two reasons small business solution providers need to think very differently about what kind of business they need to be building.

In late 2009 through early 2010 we’re seeing an unprecedented death rate of technology businesses involved in SMB (VARs, MSPs, technology experts), traditionally reseller-friendly companies going direct and the rapidly changing set of rates (from netbooks to computer service to “app store” software) for technology. The five part series titled “Death of a Services Salesman” will explore these trends, the causes behind them and hopefully give some clarity to the many that are rightfully asking: Are the good times in technology services gone for good?

We’re all about technology…

When you look at your traditional SMB technology provider, we’re for the most part all about technology. It’s our passion. It’s our business model. It’s what we live to do.

The implementation varies a bit from resellers to managed services providers but for the most part you’re not going to find former Fortune 500 CEO’s behind SMB tech firms. You’ll find a geek.

If you’re lucky, you’ll find a geek with an MBA.

We’re going to be your trusted advisor…

The focus of the sales model in SMB has always been on trust. You can trust us. You can see us. You can count on our advice because if the advice we sell you fails, we’ll fail.

So much of the sales process in SMB is built on trust that most conference content these days is focused on having panels (comprised of trusted advisors) discussing a way to compete with multi-billion dollar corporations that don’t even have a support phone number (or at best one that speaks fluent English). It’s fantastic conference fodder because it builds on the fear many face and it’s successful because it keeps up the myth that the threat is external (“Those guys are after our clients!!!”) and doesn’t confront the attendees with the actual, real problem.

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The real problem: The future of technology use in business is all about business, not at all about technology.

Doubt that? Go to random 5 web sites of SMB technology providers (Google “_my city_ managed services”) and look at their About Us pages. You’ll find the pages predicated on the important factors that the business owner(s) found when they were employed by large companies and all they did was IT. We bring enterprise to small business. We give you the power of technology that big companies have at small business rates. Count our acronyms and certifications, we’re so well connected with the technology vendors we forgot who we’re selling to! Ok, that last one is probably not going to be spelled out quite the same but you will find a lot of irrelevant junk on the web site that will never lead a business owner to make a purchase.

There is a clear mismatch of a business agenda, business model (what are we selling to whom and how) and business offerings (what would you say you do for a living?)

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Most people in this industry will also mount a very long list of arguments for why that is the right way to go about business: It’s technology, stupid! The problem with technology as a business is that the technology has changed so rapidly that most technology business owners cannot even cope with what the future looks like: What do you mean there is no server, where are files going to sit? Seriously, who will ever think of doing all their business on a shrunken keyboard matched with a 10” laptop screen? Communicate with people on a phone? With no keyboard? Get out of here!

Technology business owners focus on features and complete solutions to problems. Business owners focus on business and view technology as an expensive obstacle (pain) they deal with in order to get things done.

Many of my colleagues will fight with me over the above statement, but the sad truth is that their business would not event exist if businesses didn’t see technology as a pain worth paying to fix. Yes, there are some clients that see technology as a competitive advantage bust most are only willing to pay for problems to go away. Problems with the traditional technology deployments.

This has been the fundamental component of the rise of managed services providers. Now, it’s the leading factor contributing to their death:

Anything that can be measured can be managed.

Anything that can be managed, could be automated.

Everything that could be automated will be done by the lowest bidder, which realizes profits at a large scale which can only be accomplished when you focus on business not technology. Ouch!

Seriously. Look at Gmail. It’s got privacy issues. It’s got reliability issues. It’s virtually supportless and unaccountable – you can find your account nuked and nobody will even offer an explanation. In comparison to features found in Outlook, it looks like something we would have tolerated last century. Yet somehow, it’s the most popular SMB thing out there? Really? The fundamental competitive difference with Gmail (and it’s corporate cousin) is that it doesn’t care about what the geeks care about – it only worries about the user and the ability to send mail.

Talk about a solution that gets out of the users way and let’s them focus on business, huh?

Many in the SMB VAR/MSP space like to throw around the phrase “Let us worry about technology so you can focus on your business“ but one look at their solution stack makes it clear that they are only interested in putting more technology in front of the user, not less.

This is one of the four reasons technology solution providers are dying, rapidly. Unfortunately, this fact is not lost on the suppliers, vendors and other stake holders which are starting to pull their support and instead compete directly for the business.

short version: If you put it in writing, you can read how stupid you ideas are.

long version: I spent a couple days at the HTG Summit in Dallas last week and I thought I’d reflect on a real life Glengarry Glen Ross moment speaking to one of our partners. His comment was that I was right about the cloud, I just wasn’t right about the timing. Then I asked him how his business was doing – stopped slowing down and looking to hire later this year. Oh yeah? My comment was: You probably don’t want me to tell you how I’m doing but “I drove a $90K BMW to work and you drove a Hyundai”. Ah, if you don’t get that reference, please watch this. And yes, I did it in the same inflection as Alec Balwdin 😉

Now as funny as that seems, it was not a pleasant conversation by any means. In my passive interactions at these events (watching the keynotes, watching the “expert” panels, etc) there is a very thick level of ignorance that most people can’t seem to. And I quote:

“Yeah, we think it’s the way to go as well but I just don’t see how we make the same margins so we’re going to sit on the sideline for now.”

Did you build your business in a quarter or a month?

No.

Then what in the world are you smoking thinking that you’re going to have a phenomenally successful business in a new model in as short of a time?

Business building requires money, experience, perseverance and marketing.

What is personally infuriating is the following:

1. Partners are not dedicated to a changing business model.
2. Partners identify that the new business model makes sense.
3. Partners identify that their clients are already relying on the cloud solutions.
4. Partners are seeing demand for it.
5. Partners are sitting on the sidelines anyhow.

If you are seeing demand, seeing profitability options (regardless of the margin rates, because your margins will continue to erode) and have a bunch of people you can copy… then ignoring that trend and that opportunity is a clear sign that you should not be in a management / business owner role. Business people don’t take a pass on opportunities.

This is why I recommend blogging..

Writing things down, doodling them, exploring different topics, trying to provide an opinion or criticism of what you see in the business will open your mind to more than just the herd mentality.

It will also keep you from being late to the game. Which at this point, you are.

None: Before you overreact and consider this to be a hit piece about you (yes, you reading this post) try to understand that this is a challenge that almost all professional people face.

Over the past few weeks I’ve been in an uncomfortable position of offering a friend some advice about what he needs to do. I am hit up for advice all the time and I generally decline the opportunity because if I was that damn good to be dishing out business advice I wouldn’t be running a business. Funny conundrum. But since this friend has been instrumental in helping transform OWN to what it is today, I tried to offer my two cents here and there. It wasn’t easy writing some emails or saying some things but I appreciated when my friends rallied to help me out. The whole process, and complexities of “change” got me thinking about something that I myself struggle with and an overwhelming majority of professionals (whether they admit it or live in denial) deal with from college kids to CEO’s.

The following is not a business advice. This is career advice:

Decide what you want to do and focus on being great at that.

This is something that people struggle with, be it as business owners or college graduates. You gotta love what you do. If you don’t love what you do, the grass will always be greener on the other side and you’ll always be trading something that could be successful if you focused for something that you like (which tends to change) but can’t quite make a living at it. There is a happy middle ground somewhere between doing what you resent for money and being a starving/homeless artist.

We’re growing very rapidly and when the usual grilling is done and it’s my turn to ask a question, I always ask for the game plan. Is this job what you wanted to be when you grew up? About 90% of the time the answer is no. Everyone just stumbled into a path, ended up in a degree or specialty or program and just figured they’d play along. How am I supposed to give a job to someone that I know up front is not going to like coming to work?

Between a Guru and a Fraud

There is a thin line.

Not a day goes up that another consulting coach or management firm springs up to help you shave off some of your profits for the promise of industry leadership. Yesterday I got 3 SPAM messages from consultants coaches, and having been in this industry for over a decade, I haven’t heard of one.

Just because you can’t play doesn’t make you a coach. Towel boy maybe? OK, ok, I’m promoting you to Gatorade dispenser.

While almost everyone out there can expose a fraud, people rarely seem to stop and think about how this identical style/behavior reflects on them. Are you a blogger? Are you a social media expert? Are you a CEO? Are you a twitter phenom? Are you a business community leader? Are you a video/podcast host? If your audience can’t easily point to one thing that you do and do best then you’re no better than anyone else that is chasing the latest meme. And who wants to do business / hire a distracted chaser? (answer: very few, usually the types that are hustlers and short fused people themselves, which does not build a long term business).

One of my best friends is an all out hustler. He’s one of the few people I know that works harder than me. He owns a UPS store. He owns a tshirt/sign marketing/embroidery business. He owns a car lot. He owns a print shop. Across all of those properties he hardly pulls in what a professional would pull in a 40 hour workweek. At the cost, effort and time commitment that would crack most people.

You have to focus.

It’s something I keep on telling myself, too. Because when things are good and everyone is happy, it’s easy to sit in the Aeron and daydream about what else I could be doing. And since I’m the boss, who is going to call me out on it? That white board just looks so lonely, let me doodle something on it and find a way to solve another problem and pull in more $. Bad Vlad, bad!

It’s hard to give up the entrepreneurial spirit and always chase that next problem that could be solved. It’s also hard sticking with the game plan and pursuing excellence when all you’re doing is fixing problems your original solution created when it became successful. This is where most people crack under the pressure because they signed up to solve a problem and make money, not work hard on perfection. This is also where people come up with great excuses for mediocrity: “You gotta work smart, not hard”, “You don’t own a company, you own a job.” Oh, bull#$@%. If you aren’t front and center in leading that company, converting your vision into a reality, motivating and mentoring your staff, interacting with your clients and soliciting input – I don’t know what you’re doing but it ain’t business.

There is no shame in hard work. There is no shame in doing things right. If you find shame or lack interest, this work s@%! ain’t for you. Here’s a $1, try lottery or Vegas.