Jola Cloud Solutions' Blog

Adding new products and services to your portfolio can be challenging. What is the current demand? What products should I add? How much will I sell? What price should I sell at? At what margin? Who should I partner with? How do I manage the billing and technical support?

Dealer Model

Many companies start on a dealer model with their chosen supplier to get a feel for demand, packages and pricing. They work with suppliers on marketing campaigns, often taking suppliers with them to customer meetings and using the quoting and ordering tools available. Billing and technical support are managed by the supplier with dealers receiving regular commission/margin share.

Reseller Model

Moving from a dealer to a reseller model provides better control and improved margins, however resellers need to manage their own contracts, materials, billing and support. For those that don’t already have the necessary resource in-house it can be costly and risky to hire and train new staff to support a product, which may never make it to core product status. Using a generic 3^rd party support service is an option but there are set-up costs and you pay for calls by the minute. If your new platform is unreliable or generates early-life calls, the first month charges could wipe out 12 months margin.

Existing suppliers

The most qualified and experienced technical support teams use the products themselves and already support them for end-users of channel partners nationwide. They already operate a UK-based call centre 24/7 and may well offer a white label service.

Voice and data companies can improve ARPU by supplying new products to loyal customers. Research shows that SMEs prefer to buy from existing suppliers, they trust. Until there is sufficient demand to justify investment in support, billing and marketing, the supplier will often partner with a specialist on an introduction and commission basis. Moving from a dealer to a reseller model provides better control and improved margins, however there are billing challenges.

Billing

Billing can be especially problematic for IT companies that want to start reselling fixed, mobile and hosted telephony products. Alongside monthly service charges they will need to process monthly CDRs (Call Data Records), rating each call type and producing itemised bills and variable invoices. It can be difficult and risky to try and adapt existing in-house billing systems and purchasing and managing specialist billing software is not always feasible.

There are some good third-party billing products available, however the set-up fees, monthly standing charge and billing percentages mean the reseller often needs to take several orders before the margin covers the monthly cost of billing.

This is the question I get asked the most from Jola partners. It doesn’t have an easy answer and there is no one successful formula. What I suggest often surprises partners, but has proven to work time and time again.

What do you want to sell to whom?

Selling new products into a new market is the most challenging approach, as there are no known factors or existing relationships to build on. This strategy needs the most planning and investment and has the longest ROI, however by establishing clear objectives and a budget you can start working on a strategy.

Start with the basics

Add product overviews, features and benefits to your website. Create compelling packages and offers to attract your target audience. Focus on a strong call to action to generate leads. Think about competitive offers and how your offer differs. Put yourself in the position of your prospective customers. What problems do they have? What options are available to solve this problem? At what cost? How could your solution best meet these requirements? Make sure this information is clearly visible, easy to download and that you are responsive to their first enquiry.

Building a communications strategy to promote new products into a new audience is the next challenge. Attracting your target audience to the website via adverts, social media, email marketing and combining this with more traditional methods, such as direct mail, PR and advertising is key. Building, attracting and converting a new audience takes time, commitment and investment. You need to meet an exact need at the right time with the right solution at the right price, better than your competition. You may also need to overcome competitors that have existing relationships with your target audience.

Once you have generated interest, you need to be ready with materials to support the customer engagement and conversion process. Some customers are fine with PDFs others prefer printed glossy packs for the board to peruse, along with detailed product descriptions and a professional proposal.

Winning the first deal is crucial and when all goes well can be an excellent springboard to winning further business in the same market.

Adding new products and services to your portfolio often starts with a single opportunity. Every element of supplier services and support is tested from the time it took to answer the first enquiry, to the quality of the post-sales support. Where suppliers exceed expectations and deals are won to the satisfaction of both the partner and the end customer, motivation to find similar opportunities is high. Where demand in the base is also high, companies are more likely to consider productising solutions and dedicating resource to growing new revenue streams. Good support at every stage is vital to closing the first deal. What support does Jola offer for each partner model?

Support for dealers

Dealers use our website and branded materials (flyers, guides, videos) to market and sell solutions. Jola’s Partner Managers are available to attend meetings and conference calls as required and dealers have access to a quoting and ordering tool, which allows them to create co-branded sales proposals and email them directly to the customer. Customers can review and edit proposals and when they are they ready, they can simply click to order, which automatically triggers provisioning actions internally.

Support for resellers

Resellers have typically sold similar solutions and have a view of the potential demand. They usually understand pricing models and know what their buy price needs to be, to protect margins and be competitive. These companies may already have a web site, marketing collateral and defined terms and conditions. They tend to use our product overviews, feature summaries and competitive comparison documents, available in word, to shape their own proposition. They have their own brands, a good knowledge of their competition and their own unique selling points. They like to bundle solutions to include their own service wraps, tailored to meet the specific needs of their target sector. Once their pricing is set and products have been added to the website, they use our white label product flyers and guides to create branded versions for their sales and support teams.

When drafting a business plan, you need to be clear about your objectives. Who are you writing the business plan for? What questions does it need to answer? Typically plans are drafted to cover one, three or five year objectives and strategies to achieve them. Writing a plan allows you to identify priorities and the plan itself can be used as a benchmark to measure success. By involving key individuals when drafting the plan, you can often build an engaged and motivated team, working to achieve common objectives. Two key areas of the business plan are the financials and competitive analysis.

Financials

Some entrepreneurs only put together a business plan if they are trying to raise money but not to run their business. Your financial forecast is your dashboard and you should be re-forecasting (not re-budgeting) every quarter. As much as you might think you know instinctively how your business is going, without a proper financial plan, you probably don’t. 

When deciding on your business model remember that recurring revenues are usually more valuable than non-recurring, especially if you can sign customers up on longer term contracts. Consider a plan where your customers rent a product or service from you rather than buying it up front. Most companies prefer to spend capital on growing their business rather than on overheads and a regular and growing stream of recurring revenue de-risks your business. 

Competitive analysis

I have read hundreds of business plans and usually the poorest section is entitled “Competition”. I was regularly told “well, there isn’t really any competition” which usually means; 

• You haven’t done your homework or
• No other companies see any value in doing something similar to your idea or
• There will never be any demand for your product or
• There is latent demand for your product and it will take an enormous investment in marketing to change people’s behaviour and make them buy it

Understanding the competition can help you to estimate the potential market and demand for your products. By comparing and contrasting products and services, you can get a real feel for your own USPs and how you might position them to attract business from the competition or target a slightly different market. Analysing how the competition may react to a new entrant also helps to form the sales and marketing strategy.

Important business decisions are not restricted to business expansion or new products – strategy, employment, security, regulation and ethics all need careful consideration. Some business owners make rash decisions as they believe that mistakes can be easily rectified. Carelessness in recruitment and supplier-selection is common, where the true cost of bad decisions is often misunderstood. Managers believe they can easily correct mistakes simply by firing/rehiring and switching suppliers. Of course, it is not always that easy. Depending on tenure and management, under-performers can be hard to move on – and costly to productivity in the meantime. With suppliers, relationships are established and systems integrated. Migrating customers can be difficult, expensive and even legally problematic, especially if you only skimmed the MSA before you signed it. Running multiple suppliers of core products presents significant operational difficulties (provisioning, billing, support) and you risk loyalty bonuses and volume discounts.

2. Analysis Paralysis

Some business owners go back and forth with inquiries while trying to make perfect decisions. They listen to new specialists and new points of view. They hold meetings and watch presentations. They hear arguments from all sides. They spend countless hours on Google then conclude that they do not have enough information to make the decision. Making no decision, or deciding to do nothing, also carries risk, often more so than making a minor misstep.

The best professional poker players are not gamblers. In fact those that are, cannot win in the medium/long term - the same is true of entrepreneurs. Entrepreneurs that make instinctive, rather than calculated decisions are destined to fail. Proper and appropriate risk assessment must be applied to every decision - otherwise one mistake or piece of bad luck can be disastrous.

The uninformed will tell you that poker is a game of chance – I do not agree. Some of the keenest minds in the world, chess masters, mathematicians and scientists are professional poker players and there are many successful entrepreneurs who are also semi-professional poker players.

Probability

In poker and business, understanding probability is important. In poker this is well defined whereas calculating probable outcomes in business is more subjective. Whilst most businessmen will not construct complex mathematical models before taking a decision they will usually pass important decisions through a rudimentary risk assessment model. For example, before launching a new product they will consider the size of the prospective market and the probability of winning a percentage of it. They will turn this into a prediction of revenue and profit, which they will set against the cost (and opportunity cost) of development, sales and marketing. They will calculate a hurdle rate that the return on investment must clear before being given the green light to proceed. This hurdle rate will include the cost of money, inflation and a risk premium that reflects the range of potential outcomes.

1. Don’t get hung up on inventing something new

How many entrepreneurs have made money by inventing a brand new product or service? You need investment to build prototypes and to protect your invention through patents and copyright. Patenting is difficult, expensive and can take years. All of this assumes that you have invented something people need and will pay for. If they haven’t already realised they have a need, then you must convince them and this takes money.

The most successful entrepreneurs have taken an existing business need and found a way to serve it better or cheaper with a pre-existing technology or set of products and services. 

For example, there are hundreds of millionaires in communications and IT, with companies that did not invent anything. Many of them don’t make products, own any infrastructure or even hold stock.

2. Don’t assume that all sectors are the same

People say ‘stick to what you know’ which is good advice. You need to be passionate about what you do, however if your knowledge or expertise is not specific to a particular industry, you should consider choosing a sector with a high intrinsic value. 

If you look at the price/earning ratios for different sectors you will see that they vary. The p/e ratio of a company is simply the price per share divided by the earnings (profits) per share over a period of time. Stocks and sectors with high ratios tend to be those that the market thinks will grow in the future. As a general rule those sectors that have the potential to positively affect other sectors’ productivity (e.g. software and technology) will have higher p/e ratios. 

This feeds through to the valuation of a company for raising money or disposal since a common method of valuing a business that is not publicly traded is on a multiple of the profit it generates. 

Choose a sector that meets this criteria and you should find it easier to raise money. Also you should get more for your business when you decide to sell it. Think about how your business is positioned right now. For example, the telecom service sector (e.g. phone systems) has a p/e ratio of around 20 but the applications software sector (e.g. the cloud) is up around 60. 

Start trading before you seek external funding

In 2001 I founded an investment management company and recruited 14 entrepreneurs with time and money to invest. Hundreds of start-ups sent us their business plans and for 60% of them that’s all their business was – an idea and a spreadsheet. We would often ask ourselves “if you cannot persuade family and friends to invest seed money or put in cash yourself to test the concept and financial assumptions, why would we?” Is there a market for this product? Is this the right price? Can I make the revenues, margins and profits in the plan? These are questions you can only really answer once you have started trading.

Don’t just trust 

Don’t put people in a position where they have to make a choice between doing the right thing and their own self-interest. Example: A and B start a business together on the basis of equal shares but legally all the shares belong to A. They are very successful and 5 years later they are offered £20m for the business. A may still give B the £10m but that’s not the point. If you are B and you have let this situation evolve it is your mistake. Don’t simply trust people to avoid confrontation or the legwork to negotiate a proper deal from the outset. 

The first priority of a Director is to do what is right for the business. Don’t put yourself in the position of relying on verbal agreements. Even the most fair-minded and decent of people can be prone to mis-remembering when significant amounts of money are involved. 

This trust principle extends to professionals. Too often we trust doctors, lawyers and accountants because we don’t really understand what they do. We assume that because they have had to go through years of training that they are all equally qualified to advise us.