Office equipment dealers (OEDs) have long served a wide variety of businesses, providing the technology and services customers need to cut costs and increase productivity. But as technology evolves, so will the environment that OEDs serve. In the last decade, a massive wave of technology has flooded the office equipment market, altering the way that businesses handle their day to day operations. Digital transformation is reducing paper usage in core business processes, creating a steady decline in print volumes. At the same time, the hyper-commoditization of OED products and services, plus intense competition in the marketplace are also taking their toll on OEDs’ revenues, making growth complicated. Many OEDs have addressed this problem by pivoting their business, adding elements like software, MPS and production print to their portfolio.
But I’ve got another suggestion: managed IT.
Why managed IT?
There are plenty of good reasons for OEDs to consider the managed IT services business. For one, most of your customers are starting to demand more managed IT and security services than traditional OEDs have to offer, which can make them less relevant. As an adjacent space to the OED market, the managed IT services market shares a similar model and a lot of the same customers, making managed IT an attractive market for future-thinking OED owners. But perhaps the most attractive element of adopting managed IT is the stickiness and growth potential that comes with it.
Customers have become reliant on sophisticated software and solutions that automate processes and eliminate costs. At the same time, they realize that they need strong security solutions in order to protect sensitive information. However, they cannot or do not want to support, manage and secure a bunch of hardware and software. Who can blame them? The labor and infrastructure costs are far too rich for their blood. As a result, they lean on managed IT providers to handle it for them. But they don’t want to deal with 15 vendors to handle all their IT, so most choose to work with a single technology provider to meet their needs, which doesn’t leave a lot of room in the marketplace for one-trick ponies. It is increasingly common to see customers who won’t work with vendors that don’t offer managed IT services — especially those that don’t offer cybersecurity solutions and services. So if you can’t talk to them about managed IT or how you can keep their sensitive information safe, then it is going to be hard to talk to them about buying a copier. Not only does this put a lot of OEDs’ current accounts in jeopardy of being lost, but it also makes it very difficult for them to find new appointments.
Managed IT is the logical next step for many OEDs. The business model isn’t much different from your existing one. Selling IT equipment like PCs, servers, and network switches takes the place of MFPs and other printer hardware, while project services and managed services are stand-ins for consumables and service contract revenues. Of course, the OED and MSP model both have room for MPS programs.
Beyond staying relevant to customers, one of the most attractive outcomes from starting a managed IT services business is how OEDs can create significant growth through a high-margin, recurring revenue model. While managed IT providers don’t enjoy the same upfront revenue as OEDs, they end up collecting a lot in the long haul. Because of how sticky they are, managed IT service providers tend to grow revenues on a quarterly basis. MSP offerings also help OEDs expand their customer base, both by adding new logos and by expanding in existing accounts. In fact, more than half of all managed services contracts are net-new clients for OEDs, and those customers usually fall outside of their machine-in-field customer base. And given how complementary managed IT services are to what many OEDs are already selling, plenty of cross-selling and upselling opportunities exist. It is possible to earn 30 cents in hardware sales for every dollar in managed IT contracts, creating revenue that would never have existed in the first place.
Adding managed IT to your portfolio can also help with your exit strategy. It is similar to putting an addition on your house before you put it on the market so you can multiply your asking price. OEDs with managed IT services offerings typically fetch a higher price when it comes time to sell. And in some cases, OEMs, financial institutions and other dealerships looking to grow by acquisition won’t consider looking at dealers that don’t offer managed IT services.
Getting your MSP business off the ground
When you boil it down, there are only three ways to start your own managed IT division: build it from scratch, buy an existing company, or partner with an existing MSP. While each of these approaches come with their unique challenges, there really is no wrong way to start your managed IT division. So how you choose comes down to what your core competencies are and how much of a risk you’re willing to take (and your ability to come up with the cash to get started).
Building a managed IT division from scratch is the most resource-intensive of the three options and the path least traveled. You’re going to need a lot of money, nerves of steel and the patience of a saint to get the business going. There are people to hire, teams to build, a go-to-market strategy to design, equipment to purchase, and all kinds of new infrastructure to maintain — and that’s on top of running the rest of your business. Those who start from scratch tend to suffer the most when it comes to building a staff and take the longest to achieve an ROI.
Most OEDs that enter the managed IT marketplace do so through an acquisition. Obviously, buying companies isn’t cheap. OEDs should be wary about taking on too much debt, and make sure it’s structured in a manageable form. Even with a fast start, there are no fast returns. Like building a business from scratch, buying into the industry comes with a long path to profitability. OEDs that want to buy their way into the market have to realize that they are not acquiring a turnkey operation — just because the business already exists doesn’t mean you don’t need to know how to grow it. Those who buy must have a plan on how they want to grow the business before they buy it, or it could end up being a real challenge.
Whether you start from scratch or use M&A to enter the market, staffing is one of the biggest problems that comes with getting your managed IT division off the ground. IT professionals don’t grow on trees, and they definitely don’t come cheap. CompTIA reported nearly a million unfilled tech jobs in the U.S. in the first half of 2019. Businesses — particularly those that launch their managed IT services business from scratch — are also plagued by what’s called the staircase effect: as managed IT service providers win more business, the cost of hiring more IT staff and buying more equipment to scale the business takes its toll on margins.
Launching your managed IT services business through a partnership is the path of least resistance. Cost and knowledge barriers are much less prohibitive, and profitability can be achieved in a much shorter period of time. A partner can handle most of the heavy lifting, providing all the infrastructure, software platforms, skilled labor, education and employee training that make up a lot of the cost for getting a managed IT business off the ground, so OEDs can focus on what they do the best: selling.
We’re approaching a point where OEDs cannot easily survive without expanding their existing portfolios. As newer technologies make print less relevant, OEDs will have to find new offerings to replace lost revenues. And while selling software or production print or MPS can help make up those lost revenues, those businesses only represent a portion of customer demand. With a managed IT business, you aren’t just serving their document imaging hardware, software, and associated services; you’re handling the entire thing. Beyond relevance, managed IT services present an excellent growth driver and that can add incredible value to your customers and your own business.
Because of the overlaps between the OED and managed IT services businesses, it may seem easy to get the managed IT portion off the ground. There are, however, a number of obstacles and pitfalls that must be navigated. It can be an expensive endeavor with a long learning curve and an even longer path to profitability — but that doesn’t mean it’s an impossible journey. With enough due diligence, a lot of research and the willingness to seek aid from any number of resources, OEDs can find success in the managed IT services arena.
John Schweizer is the Vice President of the Office Equipment channel for Continuum. John has had tenured runs in key executive positions at office equipment giants like Alco Standard-IKON, Ricoh and most recently as the CEO of a Xerox owned company. He also had principal ownership in a dealership in San Diego. John currently serves as a member of the advisory board for the cybersecurity firm, Fhoosh.
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