July 30, 2014
Attention MSPs: Stop Selling Products
If you’ve spent more than a couple of weeks in the IT industry, you’ve seen your fair share of new product announcements. Vendors release new offerings – or updates to current offerings – on a literally daily basis in this industry. It’s a big part of why the industry is so dynamic.
But “dynamic” can be a challenging concept. On the one hand, dynamic can mean “fast-paced and exciting.” On the other hand, it can mean “getting left behind with obsolete things to sell at a discount.”
This dichotomy can be illustrated through the concept of pricing for technology products. Based on more than three decades of research on pricing patterns for high tech products, a very clear trend can be seen: a product will be sold for a higher price on the day it’s released than ever again in its lifecycle. In other words, the “pricing curve” for a product looks like a downward concave curve … steeper at the beginning, and shallower near the end.
Why? Because there’s no such thing as “vintage” or “heirloom” value tied to high tech products. There will always be another new thing to replace a product … bigger, better, faster, cheaper.
By extension, a company that sells high tech products has two choices: 1) deploy a high-velocity business model based on rapidly cycling new product launches to maximize the high price and profit at the front of the curve; or 2) deploy a high-efficiency business model based on continuously streamlining operations to take out cost and sustain ongoing profits while prices decline.
But there’s a serious disconnect between either of these strategies and the “ideal” business model for a solution provider that’s based on long relationships and ever-increasing expertise.
If you’re like just about every other MSP or solution provider business, at one time or another you’ve described your business relationship with customers as a “trusted advisor” … or some variation. In other words, the reason your customers continue to pay you is that they believe you have extensive and valuable knowledge about technology and how it can bring value to their business.
Here’s the challenge: if your model is all about bringing the next new thing to market … your customers won’t see you as someone who can be trusted to solve technical problems – when you show up, it’s because you want to sell them something. And if your model is all about taking out cost and streamlining your operations … your customers won’t see you as someone who can be trusted to solve technical problems – when you show up, it’s likely to be a low-level service person who costs less than an expert. Neither of these is a bad model … just not “trusted” models.
So how do you bridge that gap in logic?
First, stop selling products. If your business is defined by the products you sell (we sell storage … we sell BDR … etc.) then your pricing curve will always point down and you’ll always be struggling to defend your value and justify your services.
IMPORTANT NOTE: Stopping selling products DOES NOT mean stopping getting paid for products. It means putting the product behind your back … and selling you / your value / your service / your solution. Please, sell products. Lots of them. Just make sure the story you tell is about your business and not your products.
Second, start building a business based on practice areas. In other words, think like a law firm: one practice for contract law, another for tax law, another for litigation, etc. In your world, that might look like one practice for data protection, another for mobility, another for network management, etc. (Not about products … about outcomes). Your credibility and your value will increase over time as you focus on specific solutions … and your pricing curve will actually point up.
The most successful MSPs know the difference between a product and a business, and more importantly, what it means to build a practice based on value. Check out this on-demand Webinar to dive a little deeper.
Datto Guest Blog by:
Ryan Morris, Principal Consultant, Morris Management Partners
Ryan has more than 19 years of experience in marketing, sales, and management in the technology industry. Prior to joining MMP, Ryan was the WW Practice Director for Channel Development and Consulting at IPED (a division of Everything Channel). Through the unparalleled research assets of IPED, Ryan worked to identify and implement best practices for business development, marketing, and sales for vendors, distributors, and solution providers.