Ch-Ch-Changes: Agents Face the Strain of Business Transformation

By Cara Sievers

Even if you cant be all things to all people, you still might need to be a little more than the next guy if you want to win business. Telecom agencies are feeling pressure to provide more value-adds for their clients even if for no other reason than to keep up with the Joneses. This desire to serve bigger business in better ways has created a wave of transformation among firms in the space into more hybrid professional services-type shops and, in some cases, causing companies to change their business models altogether.

An IBM Corp. Global Business Services Report from the IBM Institute for Business Value says “business model transformation is emerging as one of the key drivers of future value for telecommunications providers,” which is a change from the 2006 survey that showed executives placing less emphasis on business model innovation (see chart below). The good news for the indirect channel though is that this same 2007 industry survey found that 72 percent of providers surveyed plan to change their business models by collaborating more extensively with external partners.

And the partner landscape is changing. Master agents can no longer be classified only as intermediaries between carriers and agents. “If traditional master agents or agents arent spending a fair amount of time strategizing and then executing on diversifying their business by adding unique capabilities and value-adds to their customers, then theyre going to be in for a really rough ride,” says Rick Dellar, co-founder of master agency Intelisys Communications Inc. “Im not saying theyre going to go out of business, but they will continually find themselves handicapped from a competitive standpoint and they will either need to develop those unique capabilities or value-adds or partner with other outstanding vendors of those.”

Whether independent agent, subagent or master agent, carrier commission checks provide the bulk of income; but the truth is that there are several hot opportunities waiting to be harvested for new revenue streams. Michael Fair, founder of channel consulting and implementation firm MarketRace, believes the agent of the future needs to focus on automation and diversification. “Continue to invest in technology that will enable you to streamline your operations and not rely on back-office people as much; and continue to diversify your offerings into emerging things like VoIP or SaaS or TEM that are related, but theyre not too far outside of the box,” he says. “Theyre new but they have cross-sell opportunities to your existing customer base.”

Agency businesses are heading full-force into the telecom expense management space in order to diversify their portfolios and meet the TEM needs of mid-market enterprises overlooked by the expense management giants that only cater to businesses with high-end monthly telecom spend.

Noel Huelsenbeck, president of Vocio, says the telecom expense management space spawned out of a time of cost-cutting directly following the dot-com era. “People wanted to know, What am I paying? Where before, it was just, Give me the services, I dont care what [the cost] is,” he explains. Huelsenbeck saw an opportunity in this situation, and therefore underwent a complete business transformation.

Vocio began as a master agency called Managed Solutions of San Diego, but then became Vocio in 2003 and began development of V-Vision, its own SaaS-based TEM solution. Huelsenbeck says he realized then that a lot of what he was doing as an agent was not necessarily being bottled and sold as telecom expense management, but as this new business model began to emerge, he felt the need to shift his companys focus. Last year, Vocio also changed its business model by dropping its subagents and essentially becoming half agent, half solution provider. “We felt if we had subagents selling carriers services, then other master agents would see us as competitors and not be as willing to buy our TEM services,” says Huelsenbeck. “We didnt want to be in competition with them.” Vocios V-Vision TEM application is the only service available from Vocio to agents.

Another hybrid agency, NetGain Communications, also developed its own SaaS TEM platform, iTEMize, sold through the channel by the companys wholly owned subsidiary iTEMize Technologies. The company initially launched a consulting service four or five years ago called Telecom Management Services. “We were beginning to charge for services that agents were typically giving away for free,” says James Larsen, COO of NetGain. “This became possible as we moved up-market to larger clients. Not only were they willing to pay for it, but they expected to pay for it,” Larsen says. As they realized the need for automation, the service eventually evolved into iTEMize, which debuted in May 2006 and recently was released in version 2.5. “Certainly the challenge there is if your goal is to do automation and build it yourself, you have to have somebody or a team of people on your staff who know how to do that,” he reflects. “Thats not an easy thing to do to become a software company.” And, of course, this is in addition to NetGains traditional procurement business where it has a significant base of business with more than 10 carriers and working relationships with more than 10 other carriers and suppliers. NetGain also reports having inked enough deals to become PAETECs third-largest agency in 2007.

In a similar vein, Intelisys has differentiated itself with two enterprise-class hosted software applications: CommADVISOR, a TEM solution for carriers and enterprises; and Audex, a solution designed to provide independent telecom agencies, consultants and distributors with an information management service to streamline business processes and to provide their customers a managed services offering that gives them visibility to all of their telecommunications services.

Being a software provider is new for Intelisys these offerings stem from another transformation Intelisys went through with its acquisition of Resource Communications LLC in 2006. Jay Bradley, Intelisys president of telecom services, says the Resource merger not only gave Intelisys direct access to enterprise accounts, but it also gave them some “ideas, competencies, skills, knowledge, networks and partnerships” in the SaaS arena. Resources former president, Dana Topping, had a vision providing telecom financial management for carriers and enterprise accounts. “With his kind of intellectual knowledge of that space, and our size and influence in the industry, we were able to turn his vision into a reality,” says Bradley.

The changes have impacted Intelisys revenue. Dellar says that in 2006, 98 percent of the companys revenue was agency revenue. In 2008, only 70 percent of the revenue will be agency, yet that business will have grown more than 45 percent. Twenty-six percent of the remaining revenue will come from the newly created Carrier Solutions Business Unit, which uses the CommADVISOR software to deliver services.

Growing Concerns

Transforming agency business by creating diverse value-adds is getting these hybrid agencies more business and more money. Peter Callowhill, co-founder and CEO of NetGain, even described iTEMize as a “Trojan horse” application, saying its gotten them into different clients with new data network needs, and has helped the companys MPLS sales.

Vocios Huelsenbeck agrees, but says there is also a need for change because “the agent model provides cash flow, but it doesnt allow you to build an asset. What I needed to do was create an asset, so along with the cash flow, we actually build something in case someday we will be able to sell that way, we have an exit strategy,” he says.

So, how does an agent get from here to there? NetGains Larsen suggests that agents find a good partner that matches their goals. “To start from scratch trying to build your own platform or trying to build your own managed services, some companies can make that leap but if youre a smaller agent, my suggestion would be that you try to find a good partner that really fits what youre trying to accomplish,” he explains.

Furthermore, NetGains Callowhill warns that the agency should make sure the transition is consistent with who they have been in the past, so they “can actually trace the evolution of their business so that theyre not leapfrogging from one type of solution sale to another type,” he says.

“If you can leverage what you already do to generate new forms of revenue, thats a solid plan for moving forward in these changing times,” added Larsen.

However, consultant Fair says that one mistake agents make is not transforming at all, but rather sticking to the same old thing. “You cant just keep selling the same long-distance service or whatever because you just wont be viable long-term without continuing to grow from a broadening your capabilities perspective,” he says.

Intelisys Bradley says that once an agency decides to transform, it must not only define what they are, but, in the process, define what they are not. Hence, any growth, whether its done organically or through strategic acquisition, should fit into the foundation a company has built, yet still allow for new philosophies, products and processes.

Stick to the plan

Mark Landiak, president of Corporate Dynamics Inc., a consulting firm that works with telecom agent businesses undergoing transformation, feels that the No. 1 thing an agent needs to transform its business is commitment. “This is not easy as most business owners work in their businesses and not on their businesses,” he says. Landiak says that committing halfway and planning poorly are the biggest mistakes a business can make. “Failure to set direction, share vision with staff and failure to properly train people in their new responsibilities” can lead to poor execution, he says.

Consultant Larry Kesslin, president of 4-Profit, says that research is really important, along with knowing what your skill set is. “The question is, whats the next business?” he says. “Every business owner faces that as their business starts to mature and sometimes starts to decline.” So, in-depth research about the market, its opportunities and your potential competition are extremely important.

“You really have to dedicate an amount of time to strategic planning in earnest that drives clear deliverables,” says Bradley. “Because what we believe at Intelisys, and we always have, is what gets measured, gets done.” Bradley believes you cant measure your progress if you dont have clear goals or outcomes to benchmark against measuring is key to success.

Finally, once the plans are made and everyones on board, you still have to pull the trigger. Intelisys says one of its mistakes in transforming its business was not moving quickly enough. “We dipped our toe in the pool a little too long in some cases,” says Dellar. “The only thing we lost was that it was just a little harder to gain momentum. We recaptured it, but in one or two initiatives I can think of, we could have done faster, better, sooner.”

Fair believes that in addition to a plan, a working knowledge base of your new initiative is vital. “Selling more managed and converged services with voice and data coverage requires stepping out of the box of what these guys traditionally know and understand,” he says. “So youve got to invest in technical support and the ability to understand those kinds of complex services.”

Of course, on that note, investing in change is a whole other ball of wax. Huelsenbeck says any time you distract yourself from your core competency, your new sales will slow and cash flow will become an issue. “If someones in the process of going from being an agent to adding a different business model, hopefully they have some backup because many times, there are some very thin months,” he notes.

Kesslin says underinvesting in new ventures is one of the most significant fumbles a company can make when transforming. “You end up with $50,000 where it really needed $150,000, and you didnt want to spend that extra money, but its going to fail if you dont,” he explains. “Understanding what the real investment costs are going to be is important.” Kesslin says hes had clients in the past that havent implemented the right plans and didnt invest enough up front, causing their plans to fall through and, consequently, losing the trust of their employees and salespeople.

Human Resources

Fair says he sees some master agents transforming through recruiting nontraditional subagents, and focusing on VARs and systems integrators. “Its going after nontraditional and incremental distribution types of partners instead of fighting over the same old guys out there,” he says.

Intelisys has transformed by focusing on its internal staff as well, saying that hiring a professional management team has been a major part of its transformation in the past few years. “Its impossible to scale if you have a self-limiting belief or philosophy that says you cant put very, very important, and often strategic, activities in the hands of folks who arent necessarily founders or primary shareholders of the business,” says Dellar. “Weve let go, and the reason why we have is because we have really hardworking people who know their business and theyre motivated to succeed,” Dellar says about his management team, which includes Bradley. Dellar, along with co-founder Rick Sheldon and former president of Resource, Topping, have taken more of a day-to-day strategic role in managing and guiding the business through high-end business development and relationship building.

Bradley feels that a lot of the mistakes people can make in transforming their businesses can revolve around personnel, admitting that he has had a couple of marketing directors in the past that havent quite fit the assignment.

Consultant Kesslin says the “major piece of any transformation starts with buy-in from the top management and their understanding of what needs to take place and their commitment to seeing it through.” And this is true not only with leadership, but also throughout the organization. “A lot of people are employees because they like routine and they like to do the same thing over and over again,” he says, explaining the importance of a willingness to accept change. “Just because the markets changing and they need to change their business doesnt mean the employees will want to.”

In NetGains transformation, personnel proved to be a key part of its change of direction. Mike Shonholz came on board as director of channel sales in July 2006 specifically to build the channel distribution for the iTEMize solution. Additionally, Callowhill explained, “we took constant pulse of what people felt would be required from a human capital standpoint and we tried to always hire before the actual requirement.”

Looking for more? Join CDIs Mark Landiak at the Spring 2008 Channel Partners Conference & Expo for a roundtable, “How to Grow Your Business A Study in Best Practices,” on Monday, March 10. Youll hear first-hand from agents who have transformed their businesses successfully. Visit www.channelpartnersconference.com.