As many readers are aware, Service Leadership is privileged to be the operator of the largest scale expert-led peer groups of Copier Dealers who are pursuing the IT business. We humbly and gratefully count among our clients not only most of the largest independent Copier Dealers, but many others who are adding Managed IT.
Each quarter, we benchmark their financial performance in detail: both their entire business and within that, their IT business (including over 80 IT metrics). We do the same for IT companies; we are in fact the largest scale benchmarker of IT companies in the industry by a wide margin.
In addition, we not only benchmark their financial performance, we also assess in detail, what we call their IT Operational Maturity Level© or OML. That is, how closely they manage their IT business to the way the top performing companies manage their IT business.
How Well are Copier Dealers Doing with Managed IT? The Real Story.
In late 2013, with GreatAmerica Financial Services, we formed the S-L GAMIT peer groups of Copier Dealers who are doing or who wanted to do IT. As part of their membership, we benchmark them quarterly — their entire company and their IT business within it.
These results leave out the three largest independent Copier Dealers who are successfully doing IT. This is so we can see what is happening with the "newbies" and the Dealers who have smaller IT practices.
The chart below shows their progress in generating bottom line profitability in their IT businesses.
The Copier Dealers were not yet profitable in their IT businesses in 2016, but they're clearly getting there.
Note: If we added back in the three largest independents who are doing much more IT and who are profitable in IT, the average would in fact be profitable. Instead we want to show you the real story of the "newbies" and Dealers with smaller IT practices, not something masked by other Dealers' success in IT.
The average Copier Dealer in 2014 lost 2,041% at the bottom line in their IT business. Thankfully, their IT revenue stream was still miniscule.
In 2015, the bottom line improved dramatically, to -21.4%. This was partly a result of dramatically greater IT revenue (though still a small portion of their overall business). It also resulted from significantly more mature marketing, sales and operations.
- In 2016, the bottom line again improved dramatically, to -6.3%, again on greater revenue and better sales and operations.
This is the improvement curve one would expect when investing in a new business headed for success.
Expectations Are Up for 2017
In November 2016 and February of this year, we helped most of these Copier Dealers finalize their IT budgets for 2017. Happily, their ability to budget IT revenue and costs — what we call their "OML in budgeting" — has improved significantly over the last few years.
All of them have budgeted to be profitable in their IT businesses by the end of calendar 2017.
About three-quarters of the Dealers expect to have their first profitable IT months in October, November or December.
Of the remaining one-quarter, about half expect to have their first months of IT profitability sometime in Q3 2017.
- The other half, expect the full-year 2017 results to be profitable for their IT businesses.
Good progress, indeed.
In helping them with their 2017 budgets, we encouraged them to be conservative on their sales volume budgets and to expect higher costs than most would like.
Conclusions from 2014 through 2016: Copier Dealer are on the Right Path to Success
A characteristic of teams getting into new lines of business is that they start with optimism and what they often feel is a prudent level of caution. This would be 2014 for many Copier Dealers pursuing IT. We call this OML 1.
However, they don't know what they don't know, and so they often enter a period where the challenges and investment seem to mount, and the distance to the goal seems to extend. We call this the "pit of despair" or, more formally, OML 2. It isn't that the business gets harder, it's that they're discovering what's really involved. Many Copier Dealers were in this phase in 2015.
OML 3 is the stage at which enough of the basics are in place that tangible progress towards the goal is being made. The Copier Dealers — excluding the three largest independents who have had substantial IT businesses for many years — have not yet broken into profitability. They are, however, entering OML 3. They're on the improvement curve you'd expect to see in any new business unit on its way to success.
That success isn't guaranteed. Yet we hope not too many people are surprised that Copier Dealers are on the right path to success. There is nothing inherent in Copier Dealers that make them less likely to succeed in IT.
Unsurprisingly, as long as they combine the known best practices in strategy, sales and marketing, service, finance and compensation with motivation and energy, they, like everyone else who has done the same — including native IT companies — can attain best-in-class service quality, revenue growth, profitability and stock value in IT. We call this OML 4.
Resources: Want to know the three things you should be doing to get attention from your managed services prospects—check out our Collabrance Managed Services Blog, here.
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