The results of the CloudSpeed Capital Adequacy Study are now in, and the bottom line is that although most Microsoft Partners have made strong progress in adapting their business models for success in a Cloud-first world, many also have a significant portion of the journey left, and may experience difficulty funding it. If you want a copy of the full findings, complete the survey here. If you have already participated in the survey and not received the findings, let me know.
Having worked with Dynamics Partners for a decade now, I believe this is a pivotal time for the channel.
As I see it, there are 2 choices a Partner can make, with very different consequences:
- Continue selling as many perpetual deals as possible, until there is no longer any real demand. Simultaneously squeeze out as much profit as possible, by cutting costs to the bone. Then close up shop, because there will likely be no buyers for what’s left.
- Aggressively pivot the business to the Cloud, make the investments needed to develop some IP and acquire Cloud users, and ride out the cash flow trough until recurring revenue builds to a point that restores profitability. Collect “rent” on Cloud users well into the future, or sell the business.
I believe this is a pivotal time to make that choice because of the convergence of strong Cloud demand, product readiness, and a favorable margin structure. I also believe that because of this, the gap between the economic winners and losers will greatly widen from here out.
Just my opinion …
Recently completed, this year’s Study dives into the impact the Cloud has had on Microsoft Partner revenue composition, margin structure, growth rates, and company valuations. As well as the core strategies being used to monetize the Cloud opportunity.
Contact me for your free copy.
Does a focus on profitability destroy shareholder value? In the Cloud, it certainly seems that way.
For many owners I know, this sounds like crazy talk. Who in their right mind wants an unprofitable business? In times of fundamental business model disruption, however, the main goal is to position yourself for the future, not cling to the past. The biggest risk you face is not evolving fast enough.
The fact is, those who are achieving the highest growth in shareholder value are very often the least profitable, because they are aggressively investing in building compelling Cloud offerings, putting the needed support infrastructure in place, and expanding their customer base before the competition beats them to it. Call it short term pain for long term gain.
Where do you stand? Is your business worth more because of the Cloud, or is it rapidly shedding shareholder value?
The real answer lies not in your current profitability, but how your revenue composition and margin structure are shifting, and whether your customer base is growing or shrinking.
Want to get a handle on where you’re really at in this Cloud-first world? I’ve developed a proprietary business valuation model that gives you a concrete sense of what your business is worth today. Ask me for it. It’s free.
Revenue drops as customers resist large upfront costs for IT projects, opting for pay-as-you-go Cloud solutions instead. Margins shrink as you re-purpose the resources needed to deliver these solutions. Welcome to the P&L trap. What to do?
Immediate response – sell more. Except that requires both a different sales approach, and an online lead generation engine, neither of which you have. And even if you did, the Cloud customer wants a different offering entirely. All of which require material investment to develop. At a time of falling profits. The P&L trap grips you tighter. No matter what you do, it seems restoring profitability gets harder at every turn.
In my experience working with Partners, the first step in freeing yourself from the P&L trap is to recognize that it’s not your biggest problem. As worrisome as your P&L trajectory might be, your business valuation is taking a much bigger hit. That’s the biggest problem you face.
To solve that problem, you first need to take a step back. Valuation in a Cloud-first world is fundamentally a function of revenue composition and margin durability. Without understanding where you really are at today, relative to others in your peer group, you really can’t take the steps you need both to increase profitability and the value of your business.
I have recently completed an independent Valuation Study of leading Microsoft Partners. It tells an intriguing story about where the money really is in the Cloud. In exchange for your data, I’ll send you the Study results. Contact me here to participate.
The results are in – and they tell an intriguing story about where the money really is in the Cloud.
Curious about how you stack up? Do you possess the optimal revenue composition? What is each revenue stream worth? How are your margins, relative to other Partners? Where does your growth rank? Bottom line, how much is your business likely worth today?
If you want answers to any of these questions, contact me here. In exchange for your data, I’ll send you the Study results.
The urgency of this question really hit home for me at WPC, delivering presentations on this topic at the MPN booth. It seems enquiring minds want to know. Evidently, there are a lot of you.
Based on my work over the last several years, I have developed the CloudSpeed Business Valuation Model. It’s a simple tool you can use to give you an estimated valuation range.
The Cloud opportunity is huge – how has the Microsoft Partner ecosystem responded so far? What has worked? What have the major obstacles been? Where are 29 leading Partners headed next? Find out in this proprietary CloudSpeed survey. Contact me for your free copy …
Let’s face it, differentiation has long been a struggle for us. And in the Cloud, it’s probably key to survival.
I spent the first half of my career in financial services. We had the same struggle. While we liked to think ourselves better than our competition, the stark reality was that there was little difference between us. Customers chose who to do business with on the basis of price and location. And we hung on like mad to razor-thin margins.
Until the rise of the “category killer”. Companies like MBNA changed the game by picking a niche focus (affinity credit cards), doing it better than all of us “generalists”, winning market share, and earning far better margins. I vividly remember Michael Porter (Harvard strategy guru) delivering a keynote and telling a North American gathering of bankers that none of us had anything approaching a strategy, and that this was a disaster for both ourselves and our customers. I could see the blood drain from my CEO’s face. He wasn’t alone.
I’m reminded of that moment as I observe the Cloud obliterating traditional Partner categories. No business model or traditional customer base in our ecosystem is protected. The Cloud has leveled the playing field because the customer is looking for real choices. They want someone who specializes in their “category”, whatever that happens to be.
And for clarity, categories are not necessarily always vertical in nature, although they often happen to be. The good news is that the Cloud enables entirely new categories. Creativity is rewarded, if it resonates with a particular customer segment and is well executed.
Our core differentiation challenge, I believe, is to define and then “kill” a category.
Are you ready for that?
And as I pointed out in the last blog, the Cloud business model is all about the long game.
Now to truly win at the long game, a Partner will need to aggressively build market share before it’s lost to competitors.
Which requires capital. In many cases, an outside capital injection.
Raising the question of what is needed to acquire it. What does a potential investor need to see in order to provide capital?
In short, 2 things:
- A credible and complete Business Plan
- A management team capable of executing it
The Business Plan itself must indicate:
- What markets you will pursue
- Who you will compete with
- How you will differentiate yourself
- What your offering set will be
- How you will market, sell, and deliver your offering set
- What the economics will look like, and what shareholder value you will create
- What capital you will require, and why
- What business risks you will face, and how will you mitigate them
Pulling all this together may sound daunting, but the good news is that there’s help. Check out the Cloud Videos tab for guidance on each of the Business Plan elements above.
I’ve also developed a Cloud Business Plan Template, based on work I’ve completed with early movers in the Microsoft ecosystem.
The Cloud Business Plan Template is free for Microsoft Partners, and can greatly increase your odds of success in the Cloud, as well as reduce your risk.
Contact me for your free copy today, and use it to capitalize on the Cloud in 2016.
My firm belief is, there’s no time to lose.