Digital Disruption: Channel Gets Tough Love

If channel companies, especially managed services providers (MSPs), think they can ride the digital disruption wave without wiping themselves out, they’re sadly mistaken. Disruption is wreaking havoc on the channel’s old ways of doing business.

This means channel companies must make a couple of pivots, says Mark S. A. Smith, owner of consultancy Bija Company and author of “Pivot to Profit from IT Disruption” and “Security in the Boardroom.”

For starters, the channel must move away from hardware and software, and toward cloud services that bring recurring revenue streams. Channel salespeople also need to stop selling to the tech pros and start selling to the line-of-business (LOB) executives.

At stake is the very survival of channel companies, Smith says. He says doomsday analysts predict that 70 percent of MSPs won’t be around in three years.

At the upcoming Channel Partners Conference and Expo in Las Vegas, April 17-20, Smith will deliver this tough talk. As part of the IoT conference track on April 18, in a session called “Profitably Pivoting to Embrace New Business Models,” Smith will explain why these pivots need to happen and why some channel companies won’t be able to make them.

In a Q&A with Channel Partners/Channel Futures, Smith gives a sneak peek into his session.

Channel Partners/Channel Futures: What is the new business model?

Smith: I’ll be talking about the shifting business models in the world of IT and how disruptive they are to traditional service providers, such as MSPs. The challenges that we face today are extraordinary.

The services that we’ve traditionally delivered over the past 50 years are no longer desirable or valuable. Nobody is architecting five years’ worth of IT to be purchased at the maximum possible price, chronically overprovisioned for two years and underprovisioned for three years.

Mark S.A. Smith

Mark S.A. Smith

Everything is in the cloud, and this radically changes the value that IT providers bring to the party.

CP/CF: What should channel partners do?

MS: The pivot they must make is to stop selling exclusively to the data curators — server admins, storage admins, system admins. Traditionally, business partners and IT resellers have had an exclusive relationship with the data-center curator.

Most of the vendor value propositions today are about the value of data. This has zero value to the data curator, which is why it’s getting harder and harder to sell to the data curator. As long as the data is secure, safe and available, the data curator doesn’t care about the data.

The next level are the data creators — CFOs, marketing departments, sales departments, manufacturing departments. These people generate data for the LOBs to consume. Data creators couldn’t care less about how the data is curated. All the shadow IT stuff exists because the data creator needs to generate data.

The next layer up the data hierarchy is the data consumers — LOBs, CEOs, managing directors. These people must have fresh data to do their jobs. While they care about data quality, they don’t care how data is created or curated. The methodology is absolutely irrelevant to them. All they want is to have data at their fingertips when they need it, so they can make their decisions.

If the data is worth X at the data-curation level, it’s worth at least 10x at the creation level and 100x at the data consumption level.

IT providers must pivot to sell to all levels of the data-value hierarchy if they want to survive and thrive. In the past, data curators have blocked us from talking up the food chain. We have to get past that.

CP/CF: Any tips on how to sell to the LOB?

MS: The challenge is that we’re talking to the wrong level about the wrong value propositions. That is what’s really causing a lot of friction in the world of IT sales. You have to figure out who gives a damn about what you’re selling and have a relevant conversation at the appropriate level.

The top of the stack cares about two things: They want top sight right now, as in, “Give me what I need right now to know the situation.” The other is foresight, as in, “Tell me what is coming down the road in the next 18, 24, 36 months.”

CP/CF: Can a salesperson who has made a living selling to the data curator suddenly switch gears and sell to the LOB?

MS: The reality is, I can take a technical salesperson and turn them into a hell of a salesperson to an executive, but not the other way around. I can’t take a strategic salesperson and turn them into a technical salesperson.

The reason is that the technical salesperson is a systems thinker, and selling to executives is a process. But a strategic salesperson is typically scattered, and so I can’t turn them into a systems thinker.

CP/CF: Will channel partners be able to make the pivot?

MS: If you are in the first few years of your business, you’re going to say, “I’ve got to make this pivot now.” They have the scenario and now need to figure out how to make the pivot. They need to adjust their business model, do assessments, and start selling to the C-suite.

We’re also going to have guys who are two or three years away from retirement. They’re going to say, “Man, I need to sell my business now. I can’t make this pivot. Sounds like too much work for me.” Wall Street is running hot. Time to cash out and make some money.

Then there are the guys in the middle, saying, “How am I going to do this?”

They might cherry-pick from the guys who are selling out and partner up with the young guys who are willing to make the pivot. They’re going to say, “Screw it! I’m going to talk to the CEOs. I don’t care who I piss off in the data center.”

They’re going to focus on startups and the midmarket, where they don’t have a data center, and service the hell out of these guys. And the services they’ll provide are going to be different, because right now the MSP world is a race to the bottom.