“The IT reseller is a dying business.” So says Leanne Graham, and she is someone who ought to know. Graham has owned several software reseller and integrator businesses in New Zealand – one was the country’s largest seller of SAP’s Business One – and she sold at what will probably be recognised as the peak of the market.
Her most recent achievement, and credential most relevant to the quote above, was the creation and execution of the go-to-market strategy for a cloud accounting software company called Xero.
Xero is a New Zealand company which celebrated in early April its 150,000th business customer. Graham, who left the company just four months earlier, is recognised as largely responsible for the strategy that added 120,000 customers in just three years.
At the heart of this plan were New Zealand’s accounting firms and bookkeepers who she turned into a ferociously effective recommendation channel that brought in over 60 percent of Xero’s sales.
It is these software-selling accountants who pose one of the biggest threats to the conventional server-dependent IT reseller. Xero, which costs $49 per month for a mid-range plan, is one of a host of cloud programs that severely undercut the cost and difficulty of server-based programs.
A life in tech
Soon after Graham began her 27-year technology career as a consultant for enterprise software, she lived through one of the great IT transformations – the arrival of Windows to a DOS-only world.
“It was a fantastic time. Software people were hanging out in Parnell (an exclusive New Zealand suburb) making lots of money. It’s a laugh when we look back now to say that it was a boom time,” Graham says.
Graham was selling a European program called Exchequer Enterprise to businesses in industries such as distribution, point of sale and manufacturing.
“We were selling to really small companies, say five users, and they were spending anything from $50,000 to $250,000 on not much more than an accounting system with stock,” Graham says.
“That helped me understand the different business processes of lots of different industries but also that huge change in what companies will do to invest in software.”
Graham was then headhunted by accounting company Solution 6 in New Zealand to run its direct-sales division for Exonet software (forerunner to MYOB Exo). Her customers were large companies that spent as much as $2 million on “a pretty simple accounting distribution system”.
When Solution 6 ran into trouble and began selling off its units, Graham bought the direct-sales division from the company with the original developer of Exonet, Mark Loveys, brought in as a business partner.
Enprise became MYOB’s largest reseller of Exonet and brought in 60 percent of New Zealand revenue for the product with 50 staff and $10 million turnover. Graham founded two other companies, a developer business for add-ons to Exonet and an integrator for SAP’s Business One.
The latter business became SAP’s leading business partner globally and Graham became the chairperson for SAP’s global partner channel.
A fourth company sold auto-provisioning software for Microsoft software and mobile phones to telcos - its largest customer was Telecom NZ.
Graham eventually sold them all off. She is glad she did.
Conventional enterprise resource planning programs and customer relationship management systems with five-figure licensing and install costs - and the resellers that sell them - are bound for a fall, Graham says.
Businesses can piece together best-of-breed solutions from cloud software for a couple hundred bucks a month instead of writing a cheque for $25,000 to $50,000, Graham adds.
“IT resellers and hardware manufacturers and distributors have been pushing back on this (cloud) stuff and rightly so, for themselves,” Graham says.
“We will see a huge number of software resellers go out of business in the next 18 months unless they start taking up cloud products and becoming industry experts.”
A channel for cloud
Cloud software and services are cheaper and easier to deploy and manage. This often more than offsets any shortcomings in features, as server or desktop-based programs are usually more advanced.
But selling cloud software is not enough. Margins are too small to sustain IT resellers. Instead the cloud must be part of a consulting pitch, which is why industry expertise is critical.
Professional services include change management, training and implementation in-house. But the most valuable advice will be giving specific instructions on using the software to improve business processes.
IT resellers that transform themselves into industry experts will find themselves up against tech-savvy accountants and bookkeepers on one side and industry professionals on the other.
Graham points to TradiePad, mentioned previously in this column, as one of the first in a stream of tech specialists to emerge from within industries. TradiePad was started by a plumber who worked out how to run his business from an iPad using cloud software. He has hired electricians and other tradesmen to teach services businesses in the Sydney metropolitan region.
Graham is now the CEO of GeoOP, a cloud-based job scheduling app which TradiePad resells.
“TradiePad is the product of an industry expert who has taken a set of products to go to market, being very clear what he knows and what he's good at. We're going to see a lot more of that,” Graham says.
The cloud vendor faces a very different set of challenges to the typical software vendor. Distribution is immediate and there’s much greater potential for direct sales given that many users will research a cloud program’s features on the vendor’s site. No downloads are required to trial the software which often comes with a 30-day free trial.
One of the traps of selling cloud software is making it too complex for end users to install themselves, Graham says. Scaling up as quickly as possible and lowering the acquisition cost per user are two key indicators for a successful cloud vendor. These become harder to do if the cloud vendor has to provide a lot of assistance to sign a customer.
Xero, which markets itself as beautiful accounting software, puts a lot of effort into designing the user interface and user experience to make it as easy as possible for new users to get started. Ease of use has a critical knock-on effect; it lets a vendor scale their reseller channel so partners can bring more customers on-board themselves.
This is the game plan for GeoOP which Graham has copied directly from Xero’s rulebook.
“We need to keep (GeoOP) simple and functional and follow the successful model by showing it’s a channel play to market,” Graham says.
Some of GeoOP’s cloud competitors have opted to take installation in-house rather than trust the mix of accounting firms, bookkeepers and industry experts working with GeoOP.
“We will always be a development company and not a services company,” Graham says.
“As soon as you do (installation yourselves), you’re in competition with your channel.”
In-house installation lets the engineers build a more complex program which drives up the cost of sales and the final price.
“At the pricing model in the SaaS market it's just not affordable to do so nor scalable,” Graham says.
Instead she prefers to invest in education: for staff, online materials, self-serve portals and for partners. Prospects can take on as much information as they want and are naturally driven through the sales process.
In the long term it helps users adapt to new features, particularly where they have an ongoing relationship with a GeoOP partner.
Many cloud vendors including Microsoft have watched Xero develop a channel to market through accountants and bookkeepers and are keen to follow suit. Despite the recency of this initiation, Graham says she believes vendors will find willing partners.
“Accountants and bookkeepers are certainly a strong channel to market because they now understand cloud and they want to add to it. It’s not core to them but it's still nevertheless a strong channel.
“That’s the challenge for the add-ons in the space, to find the right channels that are really going to create scale for them,” Graham says.
A note of relief for IT resellers; only the top 20 percent of Xero’s partners are familiar enough with non-accounting cloud software to recommend it to their clients. It will take another two years before the accounting recommendation channel takes full effect.
The result will be a breakdown of silos; accountants will no longer do just accounting.
Cloud-savvy accountants already recommending programs to their clients are facing opposition from the IT guy who says the software isn’t secure enough and that the best strategy is to hold onto the server.
But channel conflict between accountants and resellers may evolve into something mutually beneficial - once resellers stop pushing server sales to sate their own interests.
“Imagine when they both say, ‘Yes, we totally agree (on the cloud). Let's have a way that can add value for both of us,’” Graham says.
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