The Channel Company CEO Skelley: Partners Need To Evolve To Become Hybrid Solution Providers

The Channel Company CEO Bob Skelley Tuesday told several hundred solution providers at XChange 2018 that in order to thrive in the digital transformation era, partners must evolve to become hybrid solution providers driving business outcomes for customers through multiple business models and technology practices.

"Customers are becoming a lot more reliant on hybrid solution providers because they are looking for business outcomes and they can't get that from just one solution or one technology. They need somebody that can come in and drive a full business outcome by stitching together many technologies," said Skelley. "Customers are driving partners to a deeper level of engagement and insight into their business. This is about evolving and adapting so partners remain relevant to their customers to continue to realize great growth opportunities. Solution providers need to be moving down this path to become a hybrid solution provider."

Moving down that hybrid solution provider path means adopting new business models, pushing into new technology practices, and targeting new customer types including line of business, all with the aim of driving dramatic increases in recurring revenue, said Skelley.

The hybrid solution provider model is changing everything from who partners sell to, what they sell, and the way they sell, said Skelley.

Hybrid solution providers, in fact, are working with a "much broader" range of decision makers from line of business to marketing and chief security officers, said Skelley. "It's not just about purchasing and the IT folks," he said.

Exclusive data from The Channel Company's most recent Institute of Partner Education and Development annual census shows 61 percent of partners already fit the definition of a hybrid solution provider, said Skelley. "That is unbelievable," said Skelley of the rapid shift to the hybrid solution provider model. "And when we talk to solution providers that aren't already there we are seeing them move really quickly. The remaining 39 percent is closing really fast."

The business outcome focus at OST, Grand Rapids, Michigan, has powered a 200 percent increase in its managed services business over the last three years, said Michael Lomonaco, director of marketing and communications for OST. "Our three- to five-year plan is to see our services business top our product revenue," he said.

A major driver in that hybrid solution provider journey was OST's acquisition of a custom application software development company, said Lomonaco. "That has been a foundation of our growth and success," he said, noting that company's application development team has grown from five developers seven years ago to 55 developers.

Another growth driver for OST is its human-centered digital design consultancy, OpenDigital, which bis doing strategic design consulting for customers with user experience and user interface design, said Lomonaco.

"To bring a hybrid solution provider approach to the market you need to know the pain points and mind sets of each of your customers," said Lomanoco. "We want to deeply understand the problem and the customer's end user and then bring in our own thought leadership."

The census data shows that 86 percent of partners are selling to multiple decision makers under the hybrid solution provider model, said Skelley.

The evolving model also has partners adopting new technology practices at a rapid clip with 75 percent of partners now in at least three advanced technology segments from cloud to edge computing to application development and even operational technologies, said Skelley.

The hybrid solution providers are adopting multiple business models, with 89 percent adopting at least two business models that include telco, consultant, managed service provider and systems integrator models, said Skelley.

Finally, the hybrid solution provider model is driving partners to adopt new delivery models from everything-as-a-service to cloud to on-premises and off-premises and outsourcing with 70 percent of partners now driving multiple recurring revenue streams from the different delivery models, said Skelley.

The market shift to the business outcome-driven hybrid solution provider model is causing a seismic shift in both how partners and vendors adapt and evolve to a market in which hybrid solution providers are driving a deeper level of "strategic engagement" with customers, said Skelley.

Partners are going to have to more aggressively market and "elevate" their own brand, said Skelley. "Your brand is going to have to be a bigger part of what you are and who you are," he said. "It is about your brand and what you are delivering for your customer. You are going to have to work on elevating your brand and look for vendor and vendor programs that are going to support the hybrid business model."

As for vendors, the new hybrid solution provider model is going to cause them to finely tune their programs to the new model, eschewing multiple specializations in a channel program in favor of a single hybrid solution provider program. "The message is really clear: If you are a vendor it is not about specializations," he said.

What's more, vendors are going to be required to adopt a "Powered By" marketing strategy in order to be embedded in the business outcome-focused solutions being brought to customers by hybrid solution providers.

"Vendor marketing strategy needs to evolve and change, it has to be more of a 'Powered By' strategy so they are embedded in the integrated solutions being built out by hybrid solution providers," Skelley said. "Design wins through the hybrid solution provider are going to drive solution wins and scale for vendors that they didn't get before. Vendors need to focus on marketing to that solution provider community to get those design wins."

Three top hybrid solution providers, who shared the stage with Skelly in one-on-one question-and-answer sessions, said the new model is paying off in big sales growth and increased recurring revenue.

Luis Alvarez, president of Alvarez Technology Group, Salinas, Calif. said the hybrid solution provider model will drive 20 percent sales growth for his company this year to $5.5 million in sales with 75 percent of annual sales now coming from recurring revenue. "This is about listening to clients and not shying away from opportunities that might be out of our comfort zone," he said.

One of the biggest new opportunities that arose from the hybrid solution provider focus for Alvarez Technology Group, which has a thriving agricultural business, came as a result of the California law passed in 2017 to legalize recreational use of marijuana.

That resulted in Alvarez Technology Group responding to customer demand for cannabis companies looking to comply with strict video surveillance security requirements mandating 24x7 video surveillance on greenhouses with that video kept for a minimum of six months.

That opportunity came even as traditional Operational Technology (OT) vendors were balking at learning the new 4K digital video requirements, said Alvarez. "They didn't want to learn ethernet and wireless," he said. "They were fighting it. When we started to talk to vendors, they were super excited to get us to sell their product. "

As a result of the new video surveillance solutions charge, Alvarez has added new 4K video surveillance and four new technology vendors including Dahua Technology, Hikvision, and Salient Systems. "These are vendors that we would never have talked to except for the fact that we got into the video surveillance with the cannabis business," he said. "We have gotten good at video surveillance and now we are talking to other customers about surveillance solutions. Construction companies want us to protect their construction sites with cameras that are mobile and cloud-connected."

The high-resolution video surveillance technology solution has allowed customers to reduce security staffing. "That was a clear ROI (return on investment) for customers," said Alvarez. "We are working with a [marijuana] farm right now that is going to have 600 cameras when we are done."

Overall, Alvarez Technology Group has added 12 net new customers, 14 new technology vendors and multiple peer-to-peer relationships over the last year as a result of its hybrid solution provider focus, said Alvarez. "My advice to partners is listen to what your clients are telling you," he said. "If you don't, someone else is going to come in and do that work."

Marco La Vecchia, executive vice president and general manager of CareWorx and MSPWorx, said the hybrid solution provider model is driving dramatic increases in sales and recurring revenue.

"This is MSP 3.0," he said. "The multiple business models we are adopting is driving multiple recurring revenue streams. We are extending our tentacles into the marketplace with the ultimate goal to drive an additional $40,000 in recurring revenue on a monthly basis across multiple customers. We expect the hybrid solution provider model to result in $6 million in additional revenue this year."

CareWorx and MSPWorx – which were both started by MSP pioneer and former N-Able co-founder Mark Scott, are both driving significant recurring revenue growth by focusing on different markets, said La Vecchia.

CareWorx - one of the top managed service providers in the country, is also a leader in the senior care technology solutions market serving more than 5,000 senior care facilities.

MSPWorx -- which provides midmarket and enterprise managed services - has four distinct products (enterprise-level service desk, IT Service Management, remote system administration services and remote monitoring and management) and is seeing significant growth in ITSM with a tight relationship with ServiceNow. The ServiceNow practice has been transformative for MSPWorx. "We thought it was a great idea to attach ourselves to one of the fastest growing SaaS-based companies in the world," La Vecchia said.

The ServiceNow business has also driven a partnership with IBM which was interested in leveraging MSPWorx's ServiceNow midmarket focus.

MSPWorx is poised to introduce a partner program in September that will allow solution providers to leverage the deep MSPWorx service investments in ServiceNow.

MSPWorx is even building tight ServiceNow integration into remote monitoring and management systems used by MSPs, said La Vecchia.

"My advice to the partner community is 'challenge yourself,'" said La Vecchia. "Take a look at some of these technologies out there that can help you drive large recurring revenue models as opposed to smaller ones. All businesses have the opportunity to do this."

Chad Hodges, vice president of business development for Enterprise Networking Solutions (ENS-Inc), a Rancho Cordova, Calif.-based hybrid solution provider said the model could drive as much as 30 percent sales growth this year to $40 million this year for ENS Inc.

As part of that hybrid solution provider drive, ENS acquired Warrigal – an IT services management provider – last February. That provided the impetus to get into the ServiceNow IT services business. "That business is very hot," Hodges said. "We are the fastest growing ServiceNow partner for government in the country."

The ultimate lesson for partners is to "be able to roll with punches and evolve," said Hodges. "That means you cannot stagnate and just be a hardware/software reseller or a server guy. You have to be a hybrid solution provider, which means taking care of the entire stack so customers don't have to."