It’s the old tortoise and the hare analogy.
Since the residential integration business for years has been based on product- and project-based profits, firms would frantically scurry for the sale and the project that would deliver that payday.
That one payday. Those are hares.
Since product-based margins are dwindling and project-based profits are harder to achieve due to highly competitive bidding, that business model may be starting to make less sense. The better solution and one that some of the most forward-thinking firms in the industry are adopting is an “as a service” or managed services approach in which margins on product or project sales are less pivotal because they’re securing long-term partnerships and stimulating cash flow through continuing relationships with customers.
Those are tortoises.
Here’s the thing about migrating to an “as a service” model: It’s easy for me to say it’s critical to do so and much more difficult for executives to shift from business models around which their firms are built.
Business software provider ConnectWise, which specifically targets companies that sell, service and support technology, has an excellent resource that every integrator struggling with diminishing margins ought to read, The Ultimate Guide to As a Service. The first chapter lays out exactly why it’s essential to shift to a more managed services-based business model.
While ConnectWise is direct about the fact that growing pains are almost unavoidable, the good news is that another inevitability is that businesses will improve in every imaginable way under an “as a service” model.
Here are some of the major takeaways from The Ultimate Guide to As a Service Part 1:
1.) Cash flow goes up. Stress goes down.
Think of it this way. With recurring revenue from managed services, such as remote monitoring of energy or security systems, VoIP phone service or aging in place technology, cash flow becomes more stabilized. That means less worrying about payroll. Whenever I ask an integration firm CEO what keeps them up at night their answer is always the same: the well-being of their employees, their employees’ families, their employees’ mortgages; their employees’ kids’ tuition and the list goes on.
With those worries mitigated, yes, those committed executives will likely still be kept up at night. But at least they can use the time to think more productively about strategic business moves and reinforcing those employees’ security.
2.) Your business becomes stickier … and that’s good.
All CE pros strive to be engaged with their existing customers. All firms want to increase the value that their clients see in their relationship. An “as a service” model is all about attaching the firm to the client on a long term basis and establishing yourself as an indispensable partner.
A “stickier” relationship will not only lead to repeat business but to continual business.
3.) It’s an investment in your company.
If you knew of steps you could take to dramatically improve the value of your home, you’d probably do it. Shifting to an “as a service” model and locking in high quality revenue increases what your company is worth—and that’s significant even if you would never consider selling it.
Managed services builds a “legacy of value,” as ConnectWise calls it, that is important whether an owner is looking to sell or pass the company along to the next generation. It cites estimates that a business with recurring revenue is worth 16 times more than a one-time revenue model.
4.) You might find out what work-life balance is.
Running a business can be a life-sucking, personal opportunity-missing venture. A big reason for that is the aforementioned need to constantly chase the next chance for profit in order to protect and secure a business that supports your valued employees. That, however, is based on the premise that business needs that profit opportunity to secure cash flow and keep operations ticking.
An “as a service” model is based on a different premise. It’s less about chasing that profit opportunity and more about long-term nurturing of relationships that are locked in and provide consistent cash flow. It’s a slow-and-steady wins the race scenario and one that perhaps leads to more freedom to enjoy work-life balance.
So we’re back to the tortoise. And, in case you don’t remember, the tortoise wins the race.
View The Ultimate Guide to As a Service to learn more.