We’ve had some interesting conversations about the “as a Service” business model in our office over the last couple days. What sparked it was a phone call Jim Roddy, Business Solutions' president, had with a consultant who focuses on helping managed services providers grow so their businesses are worth more when it’s time to sell.
As we’ve talked about in the past, if you’re on a break-fix model, when it’s time to sell your business, you’re probably going to be disappointed when you discover all your years of hard work didn’t do much to increase the value of your business. On the flip side, businesses with a heavy book of recurring business are worth a lot more. In fact, this consultant advises not to worry about your profitability with customers in the short-term. Rather, price yourself to be less profitable and therefore more attractive (cheaper) to customers to build up your book of business and increase your company’s value for when it’s time to sell.
What struck me about this gentleman’s line of work was that it put a spotlight on something I never really noticed. Specifically, it’s common for us to interview successful MSP owners who are on their second or third company. A typical managed services story is one where someone builds a successful business and then sells it. They then start up or take a leadership role with another company to build that one up. For them, it's about the challenge of growing a successful business. And, because they've been successful, they have a financial safety net to work the type of job they want to work.
The POS industry couldn’t be more different. It’s typical to speak with a second- or third-generation business owner who most likely doesn’t even think about selling their business. Rather, they’re building something their kids will inherit.
I can’t fault POS VARs on looking to take care of family by passing on their business. But with the way the industry is changing, what’s going to get passed on to future generations is a struggling business with a dim future. That is, unless there are some significant recurring revenue components.
If you’re a retail or restaurant IT VAR thinking that an “as a Service” model isn’t for you or that you can’t afford to make the switch, you’re wrong. If taking care of family is what you want to do, why not adopt a services model, build up a large book of recurring revenue business, and then turn your family into millionaires?
If you're interested in learning more about the "as a Service" model, check out our latest Annual Guide To POS & Payment Processing (arriving in your mailboxes this week), which has a special focus on this business model shift and what you need to know. It's also online here: