Differentiate your IT services

Alex: Good day, everyone. Thanks for jumping on today. I'm Alex from inforcer and we have the lovely James joining us as well. Really pleased that you guys are taking the time out of your day to take a bit of a look at some of the content we're hoping to put together. This is the first of hopefully a sort of monthly series where we're really looking to essentially try and take in a lot of the inputs from our partners and prospective customers around a lot of the challenges that they're facing and speaking with James and having known James for a little while now we really think that this specific topic is really front of mind. Before I do hand over to James I guess I'll give you a bit of a background of what we're hoping to deep dive into today. So essentially understanding it is a pretty common theme for a lot of you on the call today but we have seen managed service revenue growth is continuing to decline.

So you know looking back at the 2022-2023 area your average MSA revenue growth was at the high 20s maybe a little bit more for a lot of other businesses and we're really starting to see that trend on its way down. The more we're speaking with partners, the real common thing that is appearing is winning your business is becoming harder and harder across the board, it is becoming more competitive. And I think the more I'm speaking to partners, the more time they're spending offboarding clients, right? So, you know, really looking at that competition is driving pricing down, more commoditized, and businesses are really struggling to see the value of traditional IT support. Okay. So, you know, really the key topics that we're hoping James can help and obviously he'll give you a bit of a background around himself and where he fits into the ecosystem. But really wanted to touch on what that modern client looks like. And how is that looking to evolve in the future, how to evolve your capabilities and your service offerings to actually match the client needs and for now and in the future.

And I think a really big piece around that is also how you operationalise these services and actually put them into practice. Right? It is really great to come on these sessions with James and come away with some really great ideas, but putting into practice building scalable solutions and tooling and processes around it is just as important. And really lastly, building a modern pricing, packaging, and positioning to really set yourself apart. So, for everyone, the most common question we usually get on these things is, is this being recorded? Yes, we are. So, for anyone who is not going to be, jumping on today, feel free, we'll be sending this out, to everyone that jumps on. But, have had the pleasure of working with James for a few years at previous roles and, yeah, without further ado, more than happy for him to run you through who he is and how he helps.

James: Thanks, Alex. It is a great pleasure to be on today. For anyone that does not know me, I'm the chief strategy officer of the TSP advisory and my whole day job is working directly with the leading partners in the APAC region to help them transform for the modern future to meet their clients needs now and as things continue to change transform their business models, their what their solution portfolios look like, their org design, and really help them scale. Scale and grow in different ways. So hopefully I can bring some insights into what we're doing in that leading edge and what's working. And what I'd warn you now is I'm going to hit you with a lot of content. So take away what you can re-watch the video in the future, but just know that you should only focus on doing one thing at a time. A lot of people get overwhelmed by everything that they need to do. And it is more important to execute on one thing at a time. And as Alex said before I start jumping into the real meat of the content, have challenges in our industry.

The growth rate of traditional managed services revenue is declining. And like what he said the sort of average is around 13% growth according to Canalys globally for this year is the expected rate but I'd say from my experience that is just an average. So what we're actually seeing is the majority of partners are actually a lot lower than that. They're either maybe growing 5-10% at most with quite a few partners declining, but then there's a real handful of winners that are growing rapidly above that 20-30-40% growth rate in their businesses. And there is a lot of opportunity there to do a lot of different things, but that growth to me is probably less important than what you're seeing up on the screen at the moment. And it is actually profitability. So you can grow revenue but there's no point growing revenue if it is not profitable. The industry average is for technology services businesses we're operating at 6% EBITDA. So a light breeze can knock us over and at any one time 25% of the industry is break even or losing money.

So we really need to do better and there are high performers out there. So I want pe I want my hope for today is people take away some ideas that are actually going to help drive them to be high performance. So let's dive in. I'm going to talk you through a whole bunch of different content. But what's important is to understand where we have come from.

James: The majority of partners out there started have been around 20-odd years. They started as break fix shops. They evolved into MSPs. But that is where most of us have stopped. We're still acting like it is 2010. We're still acting like an SP the SPS server is going to make a comeback. We're not evolving our thinking. And so let's break that down a little bit. Why? So when we started client environments were simpler in a lot of ways, but the backend technology was difficult. So, we created businesses in our local area because we're the small business technologists that could basically solve any problems. We were able to jump on and fix those really poorly configured networks. The servers would fall over even with SPS as a as sort of a quality product. They were very difficult to administer. So, all our value is coming in from that sort of technical expertise to fix broken things.

And as we progressed, as we realized, hey, we could fix price this, instead of those waves of months where we'd make a lot because lots broke and then the next month it'd be quiet because we're charging by the hour, we realized we could fixed prices and do better from a proactive perspective. And what happened was when we created those packages, most people basically looked at how much is the client spending. Let's just chuck 20% contingency on it, fix price it, and away we go. That is our managed services. And what's that what that created is a whole bunch of legacy arrangements that are underpriced and weren't built with a pricing methodology to scale. It we have also seen over time that people haven't been increasing their prices. So as our margins have been shrinking, we have been impacted the most. There's a reason why we're operating at 6% EBITDA. It is because of all of these sort of combinations of where we have come from. And so we have a lot of legacy baggage.

Let alone the fact that when I mentioned that word proactive, I'd say my experience from seeing hundreds of partners in the region that most never actually reached a true MSP. All they have done is fixed-price end user support and inf infrastructure management services but they have never rolled out proper proactive maintenance regimes. They haven't driven life cycles in their clients. It is all just been basically operating as a time-and-materials business with fixed-price revenue. And that is where as we progress, I want you to think about this because this is affecting a lot of our businesses to this day and this is why we're going to need to transform. And as we have progressed over the years, we have kept this mindset. So if you think about the way most partners are approaching cyber security, we have been treating it as a bolt-on. We have been seeing some products driven by vendors.

We have gone from those traditional packages that we created that might have had a an AV rolled into it by default as a as a bundle, but as we have been seeing the cyber security, we have seen all these products that we need to roll out and then we have gone with a product-led approach. We have not had that purposeful why are we needing to do cyber security? What's our what's our frame of reference for it? How does it impact clients? How do we engage clients to meet them where they are at to lift their postures? We have gone there's these things. How do we add that to our nebulous packages that we have created and we keep getting stalled because either clients are not engaging it and they are not buying into what we're selling or even if we have what we have done is driven a very unprofitable engagement. Again, Canalys reported 60 at least 60% of the industry is running less than 40% gross margins on their cyber services. So the majority of the industry is already unprofitable. We're running at 40%. Again, that is what's driving our very low EBITDA performance.

So again, we have kept those methodologies of the past and we keep making the same mistakes. And this is really affecting us probably a lot more than what we think.

We have touched on the lack of business growth, but why that is happening is because there's more competition than ever. The commoditization everyone's driving the prices down. So, we're not actually just have a unique value prop to bring to the market. And we're ending up competing on price. On top of that, what I'm seeing more than ever is the increasing client churn. And there's two sides to that. There's the some of the uncontrollable things. There's the ATO and IRD have cracked down on zombie businesses and have been putting them into administration insolvency. There's been our baby boomer business owners are starting to exit in droves and there's consolidation in those industries.

We're at the economic swing where people are and organizations are bringing it back in house to save on perceived costs and people are looking for cost savings because why wouldn't you when it is a commodity but that is only about 40% of the churn that I see the majority of the churn I see because I'm on the working with the partners directly that are starting to pick up all these clients is 60% and that is clients looking for more mature partners. They're looking for people that are going to help them with their GRC approach and help them with providing advice around their digital transformation. It is a very different approach, but that is what our clients are needing. While we're while we're stuck on this, I've already touched on poor margins, and that is not just from our poor pricing methodology, even though that is a key component. It is also the way we actually operate things. The fact that we're still operating through reactive measures. We do not typically have proper standards in place. We're not leveraging automation and tools properly.

And we're often overspending on tools because we're not properly implementing them. I can guarantee the average sort of million-dollar MSP out there, I can walk in and probably save them two to three grand without really knowing their business because they have they have this swathe of tools that they do not use or they have overcommitted to things that they do not actually need. And right there is just a symptom of the way we operate our businesses. We're not looking at our finances. We're not looking at our efficiencies. We're not measuring things. And this is what flows into that wa the wasted time that we do because again we're doing it reactively. We have too many initiatives. We're burning time on agreements that are not profitable and that is impacting us significantly. That is why we feel so tight. We're busy doing busy work, and it is not really effective. So I've mentioned a whole bunch that we're doing wrong.

There's a few other things that I'll point out as it leads into the sort of the next thing is one of the things that I'm really noticing in the partner base is the average partner out there does not actually understand modern technology. We're still stuck if you think about that map again of the traditional network. We're still stuck on thinking about things with servers on-premises the network infrastructure around that and the end user device and that is our world but as we're changing and I'll explain a bit more in the in the next section the architecture and the concepts and what we deliver and why has changed significantly and this is really impacting partners because we're always starting with technology first so if we do not even understand what modern environments look like. We're already way behind the eight ball on being able to create solutions and understand what's next. So before I keep rabbiting on, Alex, is there is there any thoughts or questions that you have from that segment?

Alex: 100%. I think one thing that we certainly see and I think a lot of the people in the industry probably do not invest as much time on but like actually reviewing your agreements I think you mentioned on it you know partners selling the same priced managed service offering that they did two or three or four years ago in some cases I guess from your end like what would you say is best practice and how partners are reviewing and monitoring their offerings in terms of commercially and what's in

James: we need to do it a lot more frequently. And I'll talk about how to set this up in the in a future segment, but firstly, we just need to measure it properly. Yeah, the hygiene around even simple things like time entry are still a major problem in the industry. We have these PSA tools that we can set up and configure the contracts and agreements well that we can capture the data of how much we're selling it for, how much the hard costs are for it. But we do not track our time. So how we cannot even measure our profitability. So if you do not have that level, you cannot really review a whole lot. But when you do, it can be quite scary of how unprofitable a lot of your arrangements are. And probably the other one that I'd mentioned before we keep moving on is once you do have those profitability metrics, the best thing that you can do in your organization is do a ranking of your clients by how much revenue they generate, what their profitability is that they're generating over a year.

And you'll be surprised to see that the average partner, it is usually the top five to eight clients are generating 80% of their revenue or margin. So all this fear that we have around raising prices, losing clients actually empowers us to see that data and start making better decisions and we're not we're not latching on to that legacy. And I've seen when people have gone through that process, it is so freeing and they actually get themselves unstuck to go and drive and that is creates a whole bunch of growth and a whole bunch of increase in profitability as well.

Alex: Yeah, it is a good point. I think invest investing the time to get the right data in front of you so you can make educated decisions

James: 100%. And this is where we need to start you as we start to go into the next segment. Think about what we just said there around the investment of time. And so what we're what I'm going to do in this segment is lead off from that comment I made in the list of what we're doing wrong and the conversation line I meant around the technology areas and how we're thinking what we need to start thinking is modern what's made us successful in the past is not going to be successful in the future. The environments of the past are not coming back. We have shifted and I'm going to take you through why and what the future sort of looks like so you can start you can start thinking about that and the first little area I'm going to start talking about is the big bets of the future. I am going to skim over this because I'm going to come back to it. But there's really eight core areas. And when you start looking at this and start thinking about it, a lot of this is not traditionally what we have done.

So, we're going to have to transform our skill sets, our way of engaging clients, and our and our capabilities in these different areas. And why is that? Well, things have changed. I've touched on the modern environment. If you compare the first map of a client's environment to now, the complexity has increased. And this is where for a lot of the guys that have been around a long time, they have always seen that, you know, everything's complex, but it is a different kind of complexity. In the past, the complexity was in the tech. It was the fact that we had the multiple servers, the way we had to manage exchange, the way we had to connect networks, all of that things was a lot more difficult than it is today. The complexity now is actually the broadness of technology. It is the fact that people are working from anywhere. They're more flexible in their working hours. That is what's creating the complexities for organizations. And it is not necessarily the technical side themselves. And so what I what we need to start doing is viewing things differently.

Now I've started off talking a bit about the tech and I'm skimming over it even though there's a lot of detail in here because what's actually important what we have gotten wrong over a long amount of time is we're not thinking from a client's perspective. What's really important and we need to start understanding is the client's businesses. I'm sure for many of you, you've had clients telling you, "You do not understand my business." And it is true because I can guarantee you probably I'm probably being generous, but 90% of the market does not understand their clients. And what I mean by that is their actual business operations. We think we understand their clients, our clients business because we understand their infrastructure. Clients do not care about their infrastructure. They just want it to work and that was our traditional value. We made it work for them and we made it stable. So we have solved a lot of problems as technology caught up. But what's important now is being able to bring the right advice, being able to leverage technology for clients to actually get an outcome.

And so what I'm going to take you through is a few key components as you think about it.

James: The segments of clients. We need to understand what segments we actually play in. And I and here I've have four. I should probably add a fifth. What it really is think about your micro businesses, small business, the m medium business, mid-market, enterprise, government. We know we play in some most the average partner is usually working with micro small or medium or they're working with small medium and the midm market. Right there's a problem and a challenge. If we're working in more than two segments that are not next to each other, we're going to have a conflict. And this is what most partners are facing. Their top anchor clients that I mentioned before, they might be medium-sized businesses. Is the majority of our clients are small and will have a long tale of micro businesses. The micro business and medium business do not operate the same and they have very different needs and the offerings are very different. The engagements are different, the maturity, all of that are everything's different and that is what creates the conflict for us.

That is what creates inefficiencies because all of a sudden we're having to either spread people across this and have we cannot have consistent conversations. We cannot deliver consistently. We cannot sell the same things. And that is what creates all of these inefficiencies. And that is the same for the segments that have the small, medium, and mid-market businesses. The small and mid-market operate completely different. So when you're looking starting and looking at your client base, understanding the segments as a starting point, really give you that frame of reference to start questioning where do I where do I want to play? Where do I bring the most value? How where are my best clients and how do we engage with that and how do we duplicate that to create more business? If we're everything to everyone, we're going to be nothing to everyone because we cannot we become generic and commoditized. But again, our clients want them us to understand their business. How can we understand their business if we're spread too thin?

So when we when we dive in a little bit further, we have our segments. Now what verticals? Each one of these are very different. And we all know that, but the majority of partners are very horizontal. So if you're trying to understand the client's businesses, how can you understAnd be able to talk to with a level of authority and expertise? If you're if you've have multiple verticals here, there's nothing wrong with having, you know, two, three main verticals that are similar to each other and there's consistent attributes and you can create consistency. But the reason why I bring this up is when you start scratching the surface of a business, their technology needs are very different. Their the ecosystem that they play in is different. The way they purchase and utilize technology is very different. That whole capex versus opex comes into play. The way their workforce actually operates, the type of line of business applications they use are all very different.

This might not have mattered so much when we were infrastructure and end user support because we didn't bother doing application support. All we did was elevate and vendor manage. We didn't know what has to happen in the application. We just made sure the infrastructure was available. But when we start having to elevate, we're going to need to know a lot more knowledge about these industries and talk to them because when you take the next step down, we need to start thinking about the key roles in the business. Traditionally, we have been very operational and we would work with a key contact is we would work with the operations people, the practice managers, the venue managers, the operations managers where, because we were responsible for keeping the lights on and revolving issues so people can function. But technologies expanded out from that. And if we're not involved with all these other people, we're having the wrong conversations. And a great example is cyber security. Most of us are trying to have cyber security conversations with the practice managers. They do not care.

It is a cost to their operations. They only care when something goes wrong. Whereas, if you're talking to the board level they're responsible as directors and liable. They care about that governance and risk approach across their business. And that and this is where you start expanding it out to thinking about how are you helping leverage technology across their people operations functions, their sales and marketing, their finance. We traditionally haven't done that. We do not have relationships with a lot of those people in the right ways to understand what they do day-to-day and be able to bring them bring them value. And that is why the traditional managed services are reducing because there's less issues and technology is getting simpler and what they care about has completely changed. And once you start thinking about their business, like there's some generic things that happen. They care about their business growth. They have rising business cost ch challenges as well. They have employee challenges. They're being disrupted. The regulation and legislation's changing.

We have all of these things going on and each business type and size have has different ways to solve these and leverage technology to do it. And that is what they're looking for us to bring. And you can boil this right down to these sort of three areas. They care about growth, they care about profit, and they care about reducing their risk. An impact of anything happening to that growth or profit. And we can easily frame that up and it is very easy to start meeting the clients where they're at when we understand their businesses. It is a very different mindset, very different approach. And you can see that through our traditional approaches. We're reactive. So I can tell I can tell you the majority I can I know this not just from the way we service our clients on our on our help desks and manage it in centralized services and deliver projects. It is also the way we sell to our clients. The majority of account managers in our industry are just order takers. They're waiting for a client to ask for something. But that is exactly the opposite of what the clients want from us.

Clients want us to come to meet them where they're at, lead them through conversations to help them make decisions and bring them solutions to challenges that they're facing, burning needs now, but also for the future so they can keep going on a journey. And again, for a lot of us, we're going to have to flip that script. And so what we need to start doing is creating some structure. It is I'll use cyber security as an example. We have been reactive. We have been product-led. The way to be mature around this is have a frame of reference. And what better frame of reference in the cyber security space than established global frameworks. Most people have gone down the Essential Eight road and haven't had traction because it is not really an implementable framework, let alone it is not certifiable.

The more mature partners have gone down ISO 27001 for themselves and that is helped mature that is helped open a lot of supply chain that they haven't had access to before and so when you're looking at this if you if you apply a framework approach and understand what the best practices are then you've have something to aim for it does not necessarily mean you're going to be super mature as soon as you start the process but you go on a journey of that continual improvement with a frame reference. And so let's come back to the technology quickly as we are wrapping this up. Hopefully with that sort that information about thinking about the client first. Now the technology actually starts to become important again. If we lead with technology, clients do not care. Clients need us to understand their business, understand their challenges. Everything I've just explained. And so when you start understanding that and start mapping it to the modern world and the modern solutions, you can start reframing it and repositioning it in a much better way.

And as I go to the next slide to bring up the big bets again, what's what starts to become increasingly obvious is a lot of us will not have the capability to deliver this all. There's so many different skill sets and specialities here and all businesses are going to need this sort of broadness in technology. So, we need to get our head around it. But there's something that I want you to remember as we progress through. You do not need to necessarily deliver it. So, before I keep going, Alex, is there anything that springs to your mind from this from me rambling in this segment?

Alex: Ah, definitely not rambling, James. I think yeah it is really topical content that I think is front of mind and Daniel in the chat is actually asked a pretty good question which you might have some feedback or thoughts around. Essentially he has a client on a flat rate managed support plan three months after onboarding the client they realized or the client actually asked for their video recording cameras to have some sort of checks and services as they were trying to read back or recall video footage. Now it wasn't part of their managed service. I guess the question Daniel's asking is you know looking at that onboarding and even back in the pre-sales journey are there any cunning ways of actually capturing a lot of those unvoiced needs prior to the client onboarding. So yeah any strategies or really I guess tailored best practice in uncovering those needs from the client.

James: There are two schools of thought here. We have been we have been very ingrained in a lot of the generic thought leadership that we need to cover everything because we have one package. So we need to capture all the information so we mitigate the risk of that package. So if that is still your strategy, then what you have to be aware of is doing better discovery as part of the onboarding is leveraging tools to expand out and knowing that these things are going to be asked for and highlighting them as an onboarding. So having a frame of reference again around their IT environment. If they know, if you know that there's that map of all the possible technology, create an assessment so that you can even if you do not deal with it, even if you've have no plans to deal with it, at least you can capture that information even just by talking to the client. That is one way to do it. The other way, which actually leads in perfectly as I transition in, is looking at different ways to actually position and packaging your services to meet client needs.

James: I personally, and there's no right or wrong, I do not I do not want anyone to take my advice as pure gospel. You do not need to do exactly what I tell you.

My personal opinion is that the days of that vague one-size-fits-all package are dead. And I'm going to tell you why. Because what's happened is basically we have created one generic package. All I need to go onto every day of every forum that I view is always asking what's in my stack, what's in your stack, how much are you charging? And we're copying and pasting everyone. That is what's causing our road to commoditization, but also that ultra generic commoditized package is not going to suit all the needs of all our various different clients. And so as I go through this section, I want you to think about ex think about that and what's going to be right for your clients. Again, there's no one-size-fits-all answer. Anytime I engage with a partner, I have frameworks and I have methodologies to doing things, but we always start with who's our who's our ideal clients, what are we trying to solve? Then it is a lot easier to make the right decisions for what we're trying to deliver. And so as we dive in here, I just want to open this up in our industry. We have become generic.

The term MSP h has just been used as a ubiquitous term in vendor-land for partner. The we know from what I spoke around the break fix into the MSP space and MSP is really that infrastructure management and end user support firm but SIs and VARs and other models want to become MSPs until they realize it does not just mean recurring revenue they realize they have to do something else and so as we're commoditizing what I've been doing for the last few years is challenging everyone around the next iteration, the technology solutions partner concept. I do not believe in the whole MSP 3.0 conversation because as you've seen and as I'll talk about a lot more, a lot of those big bets are not just bolt-ons to what we have always done. They're dramatic changes in our level of capabilities, the skills, our mindsets. We cannot just bolt it on. There's a reason why cyber security's been failing us. We're trying to bolt it on rather than understand that it is a it is a different game.

And so this technology solutions partner concept very quickly is it is just modern view of different business models. There's no one-size-fits-all. Just become an MSP and there's only one true way to do it. It is really just understanding where you sit with the clients. Ultimately, people are going to become that advisor and they're likely the brokers and the boutiques. There's going to be the specialists in the, you know, they could be in Azure, they could be in networking, whatever. And then there's the scale players. The scale players are driving commoditization. They can automate everything far better than everyone else. They're leveraging offshoring. They can make huge margins by volume. But for us in the average partner space, we need to pivot because we're stuck in that MSP model that is built for scale and we're not scaling. Most of us are wanting deliberate lifestyle businesses. And so that is very counter to what we need to do. And having that awareness allows you to open up.

And so when we start to think about like what's new going to the what's how do we reposition our packaging? Well, firstly what we need to do is get out of the tech. If there's nothing if there's some anything that you've taken away from a lot of my ramblings today is what's more important is understanding our client's business. We know we're experts in tech and we know we need to keep broadening our perspective around that, but we need to start elevating ourselves to an advisory status. We need to start understanding our client businesses. This is how we need to start monetizing. We stop we have to stop giving away advice for free. The when we do this properly, this is like $300 to $500 an hour type of work, not $100, $100 to $200 tech work. And for a lot of people, that is going to be challenging. But a lot of businesses want this. They will pay for this because they get the value. This is the exciting part for me is as we evolve, as the dynamics change, we can actually affect businesses and give them an ROI, not just keep the lights on.

James: And so when you start thinking about this and starting from that advisory perspective, starts opening up different opportunities in different technology areas. And so I'll break those technology areas down for you around these 12 major categories. And we all know under these 12 major categories whole bunch of different subcategories. And this is what I want to show the reality on why I'm so positive, why people why there are partners that are growing so fast. It is actually there's a huge ocean of opportunity. You just need to get out of where you are now and look in a different way to unlock a whole bunch of opportunity. This creates revenue, margin, but most importantly, the better that we do at this, the better the outcomes are for the clients. Their businesses will be better off when we transform our approach. When we start looking at the demands, we're halfway we're getting halfway through the 2025. I can I can tell you working with a whole lot of partners, the ones that are growing have shifted their focus onto these.

They're not just trying to sell those generic managed services. They're going in from a business outcome. Now, I might not have presented the it this way. I'm drawing you in from the technical side because that is what most of us default to. See, see what shiny products and technology are out there. And then we'll work out how to monetize it later. But these are the areas that are growing. These are the areas that clients are investing in because this is what's creating better things for their business. They're either reducing risk, they're increasing efficiencies, or they're enabling scale, and growth. Again, those three areas of growth, profit, risk. And we can position that way to engage the clients and meet them where they're at. And one thing I just quickly point out on this is just look at the modern secure desktop. Most of us are defaulting to Windows 11 is what we need to upgrade. Windows 10 is coming to end of life. There's big demAnd there's big demand. That is not how clients see it.

That might be in certain organizations where they have the IT managers and CIOs and stuff, the technical people, but the average business person does not care what it actually is. We have come up to the lifespan of those old devices. So for them, they're only going to upgrade when it dies or if we have proactively helped them do a life cycle. Anyone that is been around this industry long enough has seen the jump to XP, the jump to the jump from XP to Windows 7, 7 to 10. This was the same back then. People didn't get excited about a new operating system. They have they had a need to make sure their people stayed productive and had the latest performance and not cumbersome old gear. And so that is the sort of thinking we need to we need to change from. Stop getting sucked into the tech first and start meeting where the clients are at. And so I've hit you with a lot of different technology very quickly.

I want you to start thinking about monetization. I touched on advisory. There's actually five other value streams that you can make money. We have to see stop seeing things as transactional. In the past we would just sell a major up project. A server upgrade, a network upgrade. They were big. They were they were complex sometimes, and we have just been that lift and shift type approach, that transactional approach. But when you look at these value streams, there's actually client journeys. If you if you overlay the 12 solution categories, you will end up with multiple things in each one of these value streams as solutions. So all of a sudden you're either creating recurring revenue from services or SaaS products. You're creating more demand for some procurement projects through implementation solution design and end user enablement. There's so much money to be made, but it is going to be very different to how we have done it in the past. It is not lift and shift. It is not these big projects.

It is a lot of microservices and a lot of continual improvement and engagement that grows our revenue. At the start of this, we touched on the drop in growth in our in our traditional managed services. What Alex did not mention was the decline the steep decline in project services profitability. Even the high performers in the traditional space are seeing continued decline. And that is because this change from the large project base to these micro projects. Our delivery methodology is not up to scratch, which it always hasn't, but we have been able to patch over it because of large projects, but also our sales regimen does not match up to selling a whole bunch of small things because we're not talking to our clients enough. We rely on that order to come through and we'll win because we'll get a $20,000 project where now what's happening is we're likely to get $20,000 of revenue, but that will be four, five or six projects worth of effort and we're going to get see that shrink. So, we're going to have to transform that approach.

James: And so as we think about how we create a need and see where our clients are, what we start what we need to realize is there's a hierarchy of needs here. We have done the availability piece at our at our base of the pyramid. That is what we built our value on. We have evolved into as we became a bit more mature as an MSP, stepped into the layer 2. Generally, most of us are doing that well. There's a lot of improvements that need to happen, but it is sort of business as usual. There's a reason why it is commodity. Now, once we once organizations have those base, they start wanting to open up into the higher layers. This is what opens up all those new opportunities. This is why we're having to broaden our approach to technology and open up across the technology categories. And it is something that we need to really think about and it is a way to set some maturity and create that framework to understand where clients are at and take them on a journey.

Going back to that assessment piece that I mentioned earlier, and I know I'm rambling and there's a lot to take in, but what's really important, going back to one of the things I called everyone out on, we have been really poor on pricing things up. We do not have a methodology. I'm just going to say it. If you're jumping on a forum and going, "What does everyone else charge?" and you copy them, what do you expect to happen? The industry is operating at 6% EBITDA. I'm not I'm not sure I want to copy the average MSP out there. Because all I'm going down is the road of low profitability. The people that are successful have methodologies around their productised solutions. They understand the pricing methodologies across these different these different types of pricing these different types of engagements. And when you tie this back to those value streams, different value streams will have different pricing methodology. The different solutions will have different pricing methodology. The road, the run, the sprint towards everything being recurring revenue.

While recurring revenue is super important and valuable, people are shutting off the idea that they can make money in one time revenue and they're missing a whole bunch of opportunity. So, I want you to think about that. That not all the generic advice is very good because we're seeing the outcome of it. And yes, most people haven't implemented it very well. So there are people that are successful, but again, you need to choose what's right for your business model, what's right for your clients. There's no right or wrong answer. And as I start to go through a few more things, one of the big call outs I want to do quickly is most partners do not know the difference between markup and gross margin. So, we think we're doing 20% gross margin, but we have only done 20% markup. Well, 20% markup is only like 16% gross margin. So, we're losing all this profitability by using the incorrect methodology. And I know I'm there's a lot in this and I'm gonna going to come back to Dan's question as I start to get through and wrap up. We need a process for developing a solution properly.

Most of us simply receive a request from a client and then we scramble to create a solution and we get it wrong because we do not we do not package it right. We do not price it right or we create something because we have gone to a conference and we see something shiny and we need to we need to wrap it in but then we're not position we have no positioning or messaging around it. We have no commercials around it and we cause other problems. So, we need to start adopting a methodology to bring for bringing everything together. And as I throw Alex in to stop me rambling for a second, just think about where you need to start like what do your clients need? Where are they in the segmentation and verticals? And then you can start working backwards. It may make sense if we're working with micro businesses to have a one easily consumable offering. In the medium-sized business, they may need a bit more flexibility. They engage you for from an advisory perspective and then you sell them a solutions portfolio.

Maybe as you start to get to the midm market, you need your discrete managed services offering for network management, infrastructure management, this that and they engage and you lAnd expand that way. There's no right way, but there's no you need to understand that there's these different variations and it is not a one-size-fits-all. So, Alex, stop me from talking. M

Alex: I do not really want to open up a can of worms, but I whenever I sort of see this sort of content, the question I always ask is and I see partners ask all the time is around specialization and understanding your sort of target customer profile. You know, how well does that align to then becoming that advisory or being able to offer those advisory services and understanding your clients? You know, what might be some of your thoughts around that?

James: So the specialization in sort of certain verticals I think is critical. And people cringe at that because we usually hear that from the US: that is how you grow. You specialize in on a certain vertical or certain technology and you can be a lot more focused and it is true but we have always seen down in our part of the world that we have limited opportunities to do that. But that is because we're thinking about local. When we started our business, we pretty much served anyone in like a one- to two-hour drive radius and those were our clients. We needed to worry about if we could jump in the car and service them. It is a global market now. So, if you're specializing in, let's just say a professional engineering, you know, you might only have like 10 companies around your area that you can drive to, but there's thousands across the state, the country, going into expanding into the region. The numbers just grow larger and larger. You do not need to be right next door to service them anymore. And I think that is a huge mentality shift that partners need to go through.

And it the specialization allows you to properly market, talk the right way, create the right solutions, create consistency, understand your clients. And I think I think that is where most people get hung up is because they're just worried about if they can jump into their car and get away. I'm mindful of time. I could talk about this stuff for hours and hours. And so, we're coming up to our last section and our and our wrap-up.

James: We need to generate profit. If there's if I haven't drummed it in enough, we're not profitable. And profit's not a dirty word. The most successful partners are highly profitable. They have happy clients and happy employees. They have the money to reinvest into things. We're not stressing. We're not surviving. We're delivering great outcomes for our clients. We're not ripping them off. Too many of us think if we're making a profit, we're ripping people off. Actually, what we have been doing for so long is subsidizing poor business practices in our clients and not giving them an incentive to change because if there's no financial change, then they're not going to invest because we have them covered. I'm going to quickly whip through. I brought this up. These are the benchmarks of margins when you look at different our different services. There's big gaps between the high performers and the industry average. So clearly there's people that are doing even worse than the industry averages. So if you're not at the industry average, aim for that.

If you're at industry average, aim for what the high performers are doing. And this goes back to your question before, Alex, around how do I assess how well I'm doing? Start to use these sort of metrics. But as we look at our operations, we there's a few levers that we can affect that profitability. I'm not going to go through each one here, but in essence, they come down to the same things. I'm going to sound like a cliched big four consultant. Increase your prices, drop your costs, look at headcount. It really is not rocket science, but not enough of us understand the financial aspect or invest in increasing our confidence around how to read it. There's plenty of help out there for this. This is well trodden ground, but we need to we need to start doing something because a light breeze could knock you over a few of the anchor client or two if they left you. You're going to be in a lot of trouble. You do not have the profit to ride it out. And transformation costs as well. You need you need that money to invest.

So, we have a window here on our traditional services and approaches to lift that up. But we also need to start looking at how we structure our orgs differently. Traditionally, in most partners, we will just have our support team and our project team. That is how we deliver service. What we need to start expanding out to is how are we providing advisory? How are we delivering digital transformation on the application layer? How are we providing scalable automated services so that we can be more efficient. It is a big shift, but it is necessary to think about this sort of framework so that we have something to aim for. And if you're smaller, you might not be able to have dedicated resources in each of these areas. But you need to start seeing these as different functions because they have different operating models. They have different levers for profitability and growth. And without doing that, we dumb our business down too much and we're not successful at any.

If you think about those gross margins that I showed you earlier, there's a reason why the averages are quite low where we're not reporting on it well enough. We're not setting up the methodology. We're not having the right people delivering the right things in the right ways because we have oversimplified and gener made generic systems on thought leadership we have heard that we haven't understood all the nuance. And so as you think about that restructure and you take you back to the technology I mentioned a few times when you start to look at those broad capabilities big bets and you probably do not have those capabilities well we need to make deliberate decisions of how we're going to deliver solutions to our clients. Our default is always to build. That is been for a lot of us that have started out a long time ago. We had to be the only person in town because we were we had to try and do as much as possible for our clients because there weren't other people that could realistically help them. But things have changed dramatically.

The a lot of there's a lot more specialists out there that are that are scaling down to be able to deliver cost-effective solutions to the small business space. And that opportunity to partner with the right organizations are just increasing. So you need to look at what your demand in your client base is, what you want to focus on, and then choose to build or acquire that talent, that those clients, those businesses, or you look to partner. And for many of us, that is not our mindset. But we need to change that because the ones that are partnering are growing a lot faster than the ones that are not. The more that you keep everything to yourself that you cannot deliver, the less value you're actually providing to a client. You have to think client first. What do they need? What can I help them solve? That is the value that you bring. You do not have to do the work to be the valuable party in this.

James: Bring you back to the framework approach. Frameworks, whether it is a well-established standard in cyber security or whether you're creating standards internally and documenting that and creating those internal frameworks are what enable you to scale and grow. More detail you have around what you roll out to your clients, how and why it creates that repeatability. It opens up the ability for us to look at automation, how to be more efficient. Without that, we just float about our teams do different things every time. That is that just creates more and more inefficiencies. But it also opens up our cyber risks. And as I jump to the next slide, the cyber posture of most partners out there is terrible. Their tech teams do not understand cyber approaches. They open up ports. They do silly things. They're stuck in the mindset that what's most important is getting something up and running. But in that they're opening up a whole bunch of risk because we haven't educated them well enough.

But the other things to think about here of lifting our operating practices is looking at different areas. Again, if we have a framework, we can tick off a list. If we can do one thing at a time, these sort of things we should be thinking about and we should be thinking about our operational practices with security in mind. I just told you what we're doing. Everything that we should be doing, we should have security by default. If we're creating a network, we should we should create segmentation with it. If we're if we're running an M365 tenancy, it should have multi-factor authentication on it. All of these sort of approaches we need to do by default, but we're not going to do it without transforming our approach and implementing processes and procedures. When you look at cyber security and I mentioned the whole we're running, we're not very profitable in this area at all. We need to start thinking about the manual effort involved. This is what we didn't take into account back in the day.

But there's so many different options here to increase our profitability and increase our efficiency. I'll call out because I'm on inforcer's webinar M365 management. So few partners actually use a scalable approach to setting policies, securing it, hardening it, the configuration of it, and then the ongoing management. We do that, we either do not do that or we do it manually. Right there is a value add and an improvement straight away. And last, I just want to wrap this up with our mindset. We need to get out of that reactive break fix. We need to get to proactive governance. And what I mean by that is we need to measure the right things, have the right standards and frameworks in place, and then drive that through and then make sure we're compliant to that. It is a more effort, but it is going to it is going to pay off. And so wrapping up before I throw back to Alex for us to finish, what I want you to take away from this session is set some goals. Identify where you want to head, what the gaps are to get there.

Create a plan, share that with your team, work the plan, and then keep reviewing it. Too many of us hear this stuff and then do not do anything, but put it into put it into action.

Alex: So, Alex, over to you to wrap up. People are sick of me, mate. Well, timing. Had just clicked on 1:00 here, but no, look, great content and I think just based on the engagement today, I think it is definitely resonated with a lot of the team on here. I think, you know, you've shared your takeaways and I think For me, it is you know, knowing your numbers, knowing where your business is at, give yourself the opportunity to make informed decisions and, you know, from there really guide through onto the next steps. But James, obviously have some of your tags here. And for anyone that does not follow James on LinkedIn, I highly recommend following and on all these channels post really relevant content that I think yeah really can add a lot of value in your day and a lot of the topics that you guys are asking us about. So James, thank you very much for joining on today. Yeah, really glad for everyone who's taken the time to jump on. We'll look to continue these on for the next few months.

But, the questions that will not get answered, we'll, we'll get back to you guys on there at a better time. But, thank you very much for joining.

James: Thanks everyone for putting up with me for an hour. And if you ever need anything, drop me a line. I can answer it offline, too. Thank you, James. Cheers, guys.