By Abby Sorensen, Chief Editor
The Wall Street Journal’s homepage on January 17 featured a headline that included the words “IT Firm.” VARs and MSPs take note: a fellow solutions provider is caught up in a nasty, politically-charged debate being litigated on a national scale. Obviously, your clients are not paying you in large sums of cash handed over in plastic Wal-Mart bags. This story is preposterous in so many ways, and it’s far outside the realm of what’s normal for how VARs and MSPs operate. As absurd as the entire situation might be, this story does raise a few legitimate questions about IT service provider business models that are worth rehashing.
Maybe you don’t work in the government/political/personal IT sectors, so you want shrug off the WSJ article because you think it doesn’t apply to you. I’m not here to play Monday morning quarterback or to debate the political side of this story (feel free to read the WSJ article for yourself: “Cohen Hired IT Firm to Rig Early CNBC, Drudge Polls to Favor Trump”). I’d encourage you to put your political opinions aside and ask these four questions about your business:
If you copy and pasted the words in your SLA after Googling “IT service provider contracts,” chances are your contracts aren’t up to par. Bradley Gross, an attorney who specializes in working with IT service providers, says, “Contract mismanagement is not only endemic, it’s an epidemic in this industry. Unfortunately, a lot of services providers don’t realize how badly they’ve mismanaged expectations until something bad happens. That’s an expensive and cumbersome thing to try to untangle, but fortunately, it’s one that can be proactively handled through proper contract processes.” He has much more to say about contract management, which you can read in the Q&A published in the September 2018 issue of Channel Executive magazine: “Reduce Your Two Biggest Legal Risks.”
The WSJ’s reporting doesn’t do any favors to the level of professionalism the IT services industry works hard to earn by depicting a cash payment handed over in a plastic Wal-Mart bag. I think it’s safe to say the vast majority of businesses employing an IT service frim do not pay in cash. But is your process for getting paid as efficient as it could be? If your billing and accounting processes aren’t automated, you could be leaving money on the table.
Nearly four years ago The Business Solutions Network hosted one of our Channel Transitions conferences in Chicago, and a solutions provider in the audience asked a panel of his peers, “What do you do when a managed services customer doesn’t pay?” The answer is still burned in to my memory: “Shut them off.” There was an expletive included in the panelist’s short response, and it got a good laugh from the crowd. The panel continued to offer advice on this topic, from pushing notifications when an account is past due, to having a specified amount of time they’d let a client continue to utilize their services. The main takeaway was to have a plan (in writing) and to stick to that plan. Yes, it will cause your client some pain when you start turning things off, but you have to remember your business is feeling the pain from lost or late payments. Of course, this should be a moot point – clients should pay for proactive IT services at the start of the month, not the end.
You’re probably thinking, “The client mentioned in this WSJ article wasn’t on a managed services plan, so obviously 100 percent of the payment was not going to be up front.” You also might be thinking, “Project work can be extremely profitable, and there are times when it does make sense to take it on.” True, and true. But too much project-based work can wreak havoc on your forecasts and can distract you from growing your business in a sustainable way if it doesn’t come with upfront payment. That’s why one of my top takeaways for VARs and MSPs from the book Getting To Plan B is, “It doesn’t matter how clever your products, if you haven’t got cash on hand to keep your business moving, you’ll be out of business.” (You can read more about that here, and listen to a podcast discussion on it: “VARs: What Is Your Plan B?”) I don’t know of any solutions providers with 100% recurring revenue, but it’s still a goal worth striving toward.