Four Keys to Building an RMR Machine
Changing your business model is not the same as changing your shirt
- By John Szczygiel
- Sep 27, 2011
Everywhere, we are seeing articles,
blogs, advertising and
conferences about growing recurring
monthly revenue, or RMR. It
seems that the security industry is obsessed
with this concept. It’s a good obsession,
provided that we keep in mind
that building RMR is more about philosophy
and execution than technology,
and that we focus on a few key facts:
- Simply selecting an “RMR product”
to sell is not enough to generate
success.
- End users buy value-added services,
not “RMR.”
- Building service revenue streams requires
organizational commitment.
- Commitment is measured in years,
not months.
At this point, most integrators have
gotten the message that product and
installation revenues alone are not
sufficient to support a healthy organization
in the long term. It’s also clear
that the enterprise value of integrators
can increase exponentially if they derive
significant revenue from recurring
sources. As a result, many integrators
are searching for avenues that will open
up increased RMR.
Naturally, many vendors have lined
up to offer them a variety of solutions
that promise to “build your RMR.”
The verb “build” is essential here because
that’s what it takes; RMR must
be built. However, it’s important to recognize
that any technological solution
on its own won’t build much RMR unless
your organization has taken some
basic steps to ensure success.
Building RMR takes organizational
commitment and execution of a
long-term plan. There are no “get rich
quick” programs in recurring revenue
growth. Why? Because a service business
requires significant initial investments
that gradually show results over
a period of years. Consider the recent
disaster of LinkedIn’s IPO. Organizations
that jump on the RMR bandwagon
without proper planning and
an intense commitment will jump off
as soon as the investments get too high
or when another transactional opportunity
appears.
When speaking with organizations
in the process of building significant
recurring revenue streams, you hear a
number of consistent statements such
as, “We don’t sell any product without
an accompanying service,” or “We have
a dedicated sales force for our service
products,” or “We focus on service X
because it’s the one that has the most
value for our clients.” Many organizations
also describe changes they made
in financial systems, incentive plans and
the allocation of resources to support
their RMR growth strategy.
I have observed that many successful
RMR companies start with a separate
sales team built from the ground up.
Many times, the existing salespeople
are driving large revenue projects that
generate big commissions. Over time
they have also garnered large salaries to
match their experience and results. It’s
going to be tough and probably costprohibitive
to ask these salespeople to
shift their focus to the smaller projects
that typically generate RMR.
One successful tactic is to hire some
less-experienced salespeople who will
require training to sell your services
portfolio. If you pick the right partners,
the service portfolio will be less
complicated to sell than your traditional
products, so your rookies
should have a shorter timeframe to
perfect their performance.
The really successful companies
don’t just tack an RMR option onto
their existing offerings. They’ve figured
out that selling services requires a different
approach.
To really drive RMR, a business
must undergo a paradigm shift and focus
on this goal from the executive suite
on down. There is a reason for this: The
pot of gold is at the end of the rainbow,
and it takes skill and perseverance to
get to the end.
The four points below map out the
basic elements an integrator should
consider when working to build recurring
revenue. You must articulate organizational
philosophies and goals
that will support the growth of RMR.
Then you must lead your team to do it
by assembling the right mix of internal
capabilities and partnerships to create
your complete value proposition. Ensure
that your delivery platform is supported
by employee incentives that are
properly aligned for the achievement
of long-term RMR growth. Finally,
ensure you have the competencies to
properly educate your target end users
and achieve the level of engagement
that is required for success.
If you’re an integrator trying to
determine how to move your business
from a transactional model to a recurring
model, consider the following key
success factors:
- A realistic self-assessment: Look in
the mirror, and determine what your
company is really about. What types
of customers do you service? What
types of services do your customers
want from you? What would it take
for you to offer those services? What
investments must you make in infrastructure,
organization and financial
assets? Do you have the right people
in your organization, people who can
sell services and solutions instead of
technology? Are you willing to make
the initial investments? Are you willing
to stick with the strategy?
- A five-year RMR business plan:
Once you have thoroughly evaluated
your current situation, you
are ready to create a business plan.
I suggest looking at this program
on a five-year horizon. In year one
you will be making investments and
climbing the learning curve for selling
and delivering services. In years
two and three you will be perfecting
your training, market focus and
service levels. In years four and five
you are driving real revenue and
preparing to evaluate the growth
strategies to pursue in your next
five-year horizon. Having a fiveyear
plan will help you to maintain
focus on your goal.
- Strong partners: Once you know
which services you want to sell and
have a general plan for implementation,
it’s time to look for partners.
Fortunately, plenty of firms are
creating products and services that
will help you implement your RMR
strategy. As with any vendor evaluation,
you want to look for those with
successful track records. Also, look
for companies that derive most of
their revenue from RMR. You cannot
afford to partner with a company
that is just experimenting with a
new RMR model. Successfully driving
RMR means building long-term
relationships with your customers.
You can’t base long-term customer
relationships on short-term supplier
relationships. The key suppliers for
your RMR solution need to be just
as invested in your RMR as are you.
- Discipline of focus: Wanting to be in
the RMR business will not lead to
overnight success. It will take continual
effort, focus and discipline.
There will be times when transactional
opportunities distract you
and your team. You have to keep
your eye on the five-year plan. There
is a reason that RMR companies are
valued at high multiples: Selling services
and attaining on-going respect
from your customers is hard work.
There are no shortcuts to building
value-based relationships with your
customers. Building RMR is an outcome
of the process of building this
sustainable value proposition.
This article originally appeared in the October 2011 issue of Security Today.