MSP-Turned-Security Reseller: How Revenue Tripled In Year 1

Matt Johnson founded Raven Data Technologies in 2011 as an MSP. However, this year, he completed a realignment of the company and, in its first year as a security reseller, he says Raven – now Phalanx Secure - is growing by more than 300 percent.

"Our monthly revenue is higher than it has ever been," he said.

Johnson (pictured), Phalanx’s CEO, said he began to reposition the company in the first quarter of 2014 in response to the increasingly competitive nature of the MSP market. With gargantuan public clouds like AWS and Azure starting to offer services, and telcos and cable providers beginning to compete with MSPs in an already busy marketplace, Johnson decided he would refocus his MSP’s efforts around security.

[Related: Security Experts: Prison Phone System Data Breach Puts VoIP Security Into Spotlight]

"The market was getting insanely competitive and we were looking for an edge, a way to stand out. So, we started offering higher-end firewalls and more security services," he said.

But with the change, the business began to shift. Johnson said that throughout 2014, he saw the security side of the company quickly outpacing the rest of his business.

"In the last year, we pursued 75 percent security and 25 percent managed services, and our rates for security were going up," he said. So, he let go of the managed services side of the business, and earlier this month, changed the company's name, steering its focus toward reselling security and occasionally providing managed security services.

The decision to redirect the business was one Johnson said he was confident about throughout the process.

Johnson said it’s now easier to generate leads as an IT cybersecurity consulting company because, as a specialized consultant, Phalanx doesn’t intimidate his clients' regular IT providers.

"We can play nice with everyone because we do not want their hardware and software sales; … their regular IT consultant can have those," he said.

According to Melanie Posey, a managed network services analyst at IDC, the MSP market is becoming increasingly competitive. She said that, because there’s an increasing number of smaller companies that want their MSPs to provide everything, it’s becoming more difficult for those providers to keep broadening their portfolios while keeping a highly skilled staff with an expert-level understanding of everything.

However, she said the larger issue for many MSPs is scale. With the introduction of services to "super-sized" cloud providers such as AWS and Azure, MSPs are having to choose between scaling or specializing, and because it takes a huge capital investment to scale, many MSPs are leaning toward specialization.

Although Posey said she has not yet seen a trend among MSPs turning to security, she did say that moving toward the security space makes sense for them because of how much a typical provider will have a security offering – such as remote monitoring - baked into its business model.

"I think security is one of the key areas of innovation in the MSP space," she said. "It offers an interesting opportunity for MSPs to specialize."

Phalanx is a reseller of what Johnson calls "boutique" security solutions. He said his company works with smaller security vendors - like Damballa, ReaQta and Light Point Security - that may not be on the radar of many businesses, but offer best-of-breed products for the companies he works with.

That’s Phalanx’s aim, Johnson said. And thanks to a recent ruling by a federal appeals court – in which businesses that are victims of security breaches may be held accountable if their security is found to be lax - Phalanx's pledge to provide top-tier security solutions is even more important to clients.

"We now need to be on point," he said.

For many of the companies Phalanx works with, good security could represent the difference between safety and a breach that could ruin a businesses. SMBs, because of their relative lack of financial resources, could be heavily damaged by a security breach if they were to be sued under the court ruling.

"A 40-person company might not be able to survive a breach," he said. "Where a company like Target can survive and pay out a couple million dollars a year, a smaller company might not be able to handle it."

So, to keep end users safer, Johnson is reselling affordable security software to end users and occasionally providing services with it. However, looking ahead, Johnson said he’s working to assemble a partner program that would include MSPs. He said adding Phalanx's solutions to their offerings will make it easier for the MSPs to focus on and better execute their own solutions

"It will allow MSPs to focus on what they do best - managed services - but allow us to be able to help protect their clients," Johnson said in an email response to a question from CRN. "You can't be an expert in everything, so our goal is to let Phalanx guide and assist MSPs

’MSPs are [like] general contractors; they can do a lot of really cool things. But if their client wants a $110,000 home theater with all the trimmings, you are going to call [a specialist],’ he added. ’It’s the same with IT security: Call in the big guns, let’s all work together and we all make more money in the long run."

Johnson believes security will be a top-level focus for more businesses. He said the landscape is always changing, but security is now "a do or die" solution.

"It’s been pretty amazing," he said. "Security sells itself."

PUBLISHED NOV. 18, 2015