By the Arrow ECS Cloud Team
The Arrow Cloud Journal has recently been presenting a story arc that describes how solution providers are building cloud and managed services practices, and explores the reasons for, as well as examples of, business transformation. In our latest offering, we are pleased to introduce the first conversation with an industry leader who shares the lessons learned on the journey in moving from a technology reseller to cloud solution provider.
Recently, David Powell, Vice President of Managed and Cloud Services at TekLinks, sat down with us to discuss their business transformation. In the conversation, it became clear that, like their peers succeeding in a transformation, TekLinks had made a commitment at the highest level to embark on this journey and maintain a steady and persistent effort to achieve their goal. The frank and open discussion that followed is excerpted below.
How would you describe your business as it stands today?
TekLinks operates as a service provider as well as a value-added reseller. We offer technology, managed services and cloud services to support our customers’ needs. The intent is to meet a customer where they are on an IT acquisition journey and not to dictate any single solution.
We are an established VAR with strong technology proficiency and the ability to cleanly transact business. We’ve built deep, long-term relationships with our clients by working through multiple tech refresh cycles.
Our services practices provide an important point of differentiation. Services-enabled solutions are often better for our clients. We find that simply asking customer “what they want” results in a request for a faster and cheaper version of what they already have. We’ve adopted the challenger selling model to empower our teams to share different and better ways to acquire IT with their clients. This has allowed a shift in the selling paradigm, permitting us to offer solutions aligned to outcomes our clients want. We use the analogy that “doctors make the diagnosis, patients don’t.” We seek to specify the solutions and invest in educating our customer on why they will deliver better outcomes, lower risk, reduced costs or increased revenues.
Prior to the launch of your services business, how would you define your business?
TekLinks started in 2001 as a Cisco and Microsoft reseller, specializing in networking and telephony services. For the next five years, we built the business on the resale of these core products, eventually adding EMC and VMware to the mix. In 2006, the company purchased a small data center, and we began to offer colocation and basic hosting services.
What were the reasons behind making the commitment to pursue a services shift?
TekLinks former owner, Stuart Raburn, recognized reseller-based business did not create shareholder value. He had vision that the future business value would be driven by recurring revenue streams. Because of the structure of the reseller business, we needed to add monthly recurring revenue (MRR) into the revenue streams. An opportunity to make the investment in a data center came up. After consideration of the business and how it served our customers and goals, we made the decision to purchase the data center and begin offering colocation and hosting services.
What types of business changes were implemented as you grew the recurring revenue services business?
With a move to build a profitable, recurring revenue business, the owner invested significant returns from the VAR business into the services business growth. In 2008, he brought in an equity investor to build out two additional data centers. Over the next four years, we grew our MRR business, and, in 2012, Pamlico Capital acquired a majority interest in the company. Stuart Raburn became a member of the Board of Directors, retaining an ownership position.
What organization behavior changes were needed to facilitate the services business growth?
At the start, there was a clear message from Stuart Raburn that “this (services business) is where we’re going to go,” and the outcome would be “best for company, shareholders and customers.” Next we incentivized new behaviors, disproportionately awarding the sales of MRR offerings.
Sales was also segmented (where practical) with Services separate from the VAR-focused team. We’ve adopted a selling model that incents field sales to work with the resale and services presales teams to identify the right customer solution. When field sales identifies an opportunity, they work through a guided discovery conversation with the customer supported by presales engineers exploring options, preferred outcomes and possible solutions. The best solution is evident to both the customer and TekLinks as a result of this this process. We don’t like to offer multiple options, in effect selling against ourselves. This can’t be completely stopped, but it’s not the preferred outcome and is discouraged.
Field engineers and professional services engineers were also incented to make change. Field engineers previously were measured on billed hours and had to be supported in moving ongoing care over to the centralized operations support. Early on, we worked to resolve conflicts between past practices and the new direction. For example, we’d work together with our engineers and clients to present a migration from a Microsoft Exchange platform to TekEx (hosted Exchange) offering, instead of only offering a tech refresh. We continue to recognize services successes – and, over time, this has helped to shape the selling behavior.
We remain firmly committed to our VAR business – but we are fully prepared to support the customer that is looking to change.
How did your services evolve with the growth of the services business?
Initially, we provided colocation services and later added hosting. The hosting services leveraged the technical skills and expertise of the TekLinks engineers and were built on core enterprise solutions from Cisco, EMC, VMware, Microsoft and Citrix. We chose to build on industry standard platforms delivered by our certified engineers. This decision provided a level of assurance and differentiation from competitors.
The early hosting solutions were often one-of-a-kind offerings that required “heroic effort” on the part of the technical team, were challenging to replicate, and offered little chance to scale. In 2009, we undertook a program to standardize our services to create our Tek line of cloud services for email, security, business continuity and BYOD. The Tek offerings provided a way to build a clearly articulated set of deliverables and set clear service expectations for the customer. Behind the scenes, we were able to establish consistent delivery processes and cost controls necessary to scale the business. Our sales team was tasked with building business around these offerings – which, in the end, were more predictable and delivered better outcomes. We immediately experienced a jump in customer satisfaction, renew rates continue to climb, and our MRR has increased more than seven times.
How did your operations change with that type of growth?
When we first began offering colocation and hosting services, we had a fledgling customer support model and a well-developed professional services team. Early on, the professional services teams took on a heavy load delivering services, but this lessened over time. We’ve made investments “behind the glass” in operations center capabilities, continued to develop operations maturity, and adopted services frameworks around ITIL standards and SSAE 16 to steadily improve our delivery processes. We see operations improvement as an ongoing journey and not a destination.
Looking ahead, what are the areas where you see growth and where do you see the business going?
We are seeing adoption and growth in hybrid IT. Clients are looking to adopt solutions that embrace owned IT working together with as-a-service solutions. We are also exploring hybrid offerings, combining specialized capabilities of third-party cloud providers. We continue to look to rationalize our solutions and are evaluating the choice of in-house solutions to third-party service providers. For example, early on in the development of our hosting offerings, we identified AlertLogic’s security offering as an important part of a security package. Since we couldn’t cost-effectively re-create that type of service on our own, we worked to build this capability into our comprehensive security solution.
What advice would you give to a solution provider considering a move into cloud and managed services?
Solution provider executives need to make the commitment to go to this model and stick with it. They will inevitably be faced with challenges to this pledge. For example, they may be faced with a decision to sell a $10,000 MRR-hosted MS Exchange deal over a one-time $200,000 project. They have to be comfortable in sticking to the plan – and not change their decision. If they dabble and waver – they will fail.
In future interviews, we will explore more transformation journeys and highlight the ways these service providers businesses have changed along the way. If you would like more information about cloud services, contact us at 877.558.6677 or send an email to firstname.lastname@example.org.
Editor’s Note: This post was originally published in July 2015 and has been updated for accuracy and comprehensiveness.