Why Adopt The Hybrid (Break-Fix And Recurring Revenue) Business Model

By Dave Sobel, Director of Partner Community for MAXfocus at LogicNow

Managed services and the managed services business model remain the belle of the ball. Throughout the economic recession and over the past decade, the business model has proven itself resilient. According to industry data, best-in-class managed services providers have maintained their margins with systematic precision.    

The industry has sent a clear message to solutions providers — embrace managed services. Vendors have embraced this message, delivering it in force across the industry. Trade organizations and business coaches recommend it, and it’s clear it’s a path to profitability.

What is interesting about this message is the implication that is left unsaid. The message is designed to communicate a push to managed services, implying that break-fix style business is to be abandoned in favor of managed services. The best practices of the MSP model actually add weight to that message. These certainly include:

• sales compensation and the sales process for managed services is different from break-fix
• engineers are to be measured on diametrically opposed KPIs (key performance indicators) on managed services when compared to break-fix
• the motivation for the solutions provider is to minimize labor hours while maximizing automation in a managed services model, the opposite of the break-fix one.

Left unsaid, a solutions provider could certainly believe that in order to be successful at managed services, you must abandon break-fix entirely in order to enter the promised land of recurring revenue.   

This is not true.

You don’t have to abandon this line of business. There are reasons to stay in this business. First, if this line of business is profitable, there is nothing wrong with continuing to grow a line of business. In fact, many successful solutions providers have a mix of product, services, and managed services. Often this mix allows a solutions provider to have a diversified business. 

In fact, a diversified business allows a solutions provider to sell to different markets.  Not every customer will want to buy managed services, and having a different offering allows the solutions provider to convert that prospect into a customer. Additionally, this is often a great prospecting option, with customers calling in crisis looking for support who may not even be aware of managed services. Having an instant solution and the ability to then discuss managed services does require having break-fix style offering.

There are certainly challenges in running two different service delivery models. They do have different sales compensation; they do have different KPI’s; they do have different motivations for engineers; they do target different markets. That is a business challenge, but it’s not one that precludes offering the service. This requires good management and good business processes. This requires defined sales processes, and defined marketing messaging. Many solutions providers focus on one model because of the simplicity of that style, but this is not a required one.  

Best-in-class managed services providers excel at process. As the saying goes, in mystery there is margin, and thus the challenge to setup a process results in margin. A wider net of possible customers means a wider offering, and thus larger possibilities for growth. A model that supports both is certainly possible, and a commitment to managed services is not a statement that break-fix is removed from the business or completely unnecessary. Focusing on successful delivery of both can offer a larger, more robust solution set, and ultimately drive margin and growth.