EP135 - Why the IT Channel Is Broken with Phylip Morgan and Ian Luckett

INTRO

In this episode at the IT Experts Podcast, we talked with Phylip Morgan and it tells us why the channel's broken.

Welcome to the IT Experts Podcast, the only podcast to help MSP scale to 1,000,000, and if already there get to 5 and go fast at the end of the day, isn't it all about building a business that works for you rather than you for it. I hope you enjoy the show.

IAN

Welcome to the IT Experts podcast. We have on the show today absolute living legend once again, Mr. PHYLIP Morgan, how on Earth are you today, my friend?

PHYLIP

I'm fantastic, mate. It's sunny in West Wales right now where I'm recording this podcast, and so I'm particularly cheery cause we haven't got Rain Man?

IAN

Well, that's great. Well, look, we've had an absolute monumental few hours trying to get this podcast together with technology, but we're here today, and we're going to be talking today about why the channel is broken and around distribution and what's going on and how to help MSP stay ahead of the game. You know, since the pandemic, since economic meltdown, whatever you want to call it. But we started talking about this show and we said let's just start recording it. Phyl, what's the kind of headlines on your views on this new methods of distribution changes in the channel? What's going on? Why have you got this statement out there, that the channel is broken, my friend.

PHYLIP

So let me ask you a question first Ian, and then and then I'll dive in if I can.

IAN

I love the way you do this.

PHYLIP

When you're describing to your grandmother or people that are not in the industry, right?

IAN

Yeah.

PHYLIP

When you say I work in the channel, I mean, you're not referring to the English Channel or the Bristol? Channel, right? What do you understand the channel to be?

IAN

The channel, that's a great... whose podcast is this anyway? I mean, we've done this before. But anyway, great question. Thank you for the question, Phyl. What do I think... so the channel is to collect in my view, it's the collected businesses sectors, vendors, users, partners, people that enable technology across the world, I guess. And they are you know, they work together in that technical space to support innovate, develop, deliver tech ability to businesses and to people.

PHYLIP

Spot on me so.

IAN

I'm glad I got that right.

PHYLIP

Yeah, you're spot on. So basically there are what we call vendors. So software companies, hardware companies, etcetera from you know the big hyperscalers that we would be aware of in cloud. Led by Microsoft and Google and Adobe and people like. Then in the hardware side, you've got manufacturers and we, which is, you know, your traditional kind of Samsung, HP, you know, endpoint delivery guys. Apple are part of that mix at the moment. Definitely the mobile piece as well. So, we've got people that are wanting to access cloud services via their endpoints and so the channel is, cloud services, software etcetera and then the endpoint part of it is the hardware element of it.

OK, so the way that vendors used to go after that market is they would either use A two-tier or a three-tier model. So, the two-tier model is that they are direct with the reseller so they could be a VAR at TSP and MSP and like I mean it's all spreading at the moment now with the explosion of the trusted advisor. Right. So, there's several specialists who are there, who are kind of specialists that are there, who are people that have customers and they need to purchase services for them. So the two-tier model is where people went direct or hey, come on, I used to be back in your day you were with Virgin Media. I used to sell virgin services direct as a virgin media reseller right leased lines and everything else like that back in my MSP days. I would, was a direct, we would direct with Samsung we would direct with Microsoft for a time when I was wearing my MSP hat. And for those that I didn't have the volume or the accreditation to do it, so for a short time I was direct with Cisco and then it was easier for me to actually buy Cisco through distribution because it was cheaper. And secondly, there was less accreditation. I didn't have to hit targets, so I didn't have to get engineers trained in the same way you know the hawk and you're from this world as well, right? So the channel works through either A two-tier model or a three-tier model. That's it. So, it's either vendors direct to the reseller or vendors through the distributor to the reseller announced how the channel was working.

OK. My view today is the channel is broken and so part of my mission is I'm here to fix it. So, tell me in that Channel model, you and I are involved in lots of communities.

IAN

Yep.

PHYLIP

Communities like CompTIA communities like IT, Nation network group, lots of other communities out there. Where do they sit in the channel model?

IAN

That's a great question, isn't it? That is a great question. Where do they sit because...

PHYLIP

They don’t. Where do marketplaces sit in this new ecosystem, in the original channel? Where do all the academies and training facilities sit? They are not there. Where's the ecosystem piece or there's emerging in the new post pandemic market? There are lots of services and you can see it happening. The easiest way for me to describe it look, look at the awards ceremonies all over Europe.

IAN

Yep.

PHYLIP

There's so many new categories arriving categories that wasn't there so like what is distributor of the year now, like who wins? That what is Security vendor of the year who wins that? Is that called a hardware company or does that called a software company? and more importantly does it go to an academy? There's training people in security, so that's where I am coming from with my messaging for 2023, noting that we just flipped the switch on AI in a big way and I'm not going to go down that. We're in war right now, but that's why I'm saying the channel is broken and I'm here to fix it.

IAN

Brilliant. What a great opening statement. So what does fixing mean? You know, in terms of, you know future of the... of it that we talked about, we we're talking, you know, people are talking about subscription based models where they don't have to buy the hardware and they can kind of rent it and and all of those kind of good things. It was quite interesting I was talking to someone yesterday. Talking about the same thing about the school system because people are now or kids are now being educated in schools for jobs that aren't even going to exist. You know and then, uh, you know, if you if you want to go and I mean, I'm not sure many people do. But if you want to, if you go through school. Go. I'm gonna be a bank manager. Forget it, because what you going to manage cause? It's all going to be you know, it's it's all the banks are disappearing and I guess this is the same thing here is where you've got the channel which has been the hardware, the software that the vendors and all that, those types of things and it's now working around a different way, when you look at some of the groups that we are part of the power in those groups when someone says, hey, I've just tried this new system and they and you see them or move their heads to the screens and go. Tap, tap tap tap tap. What's that all about then, and the influence of the the peer pressure and the influence of the of the way that other businesses operate and what they can get out of it. Is a lot. Well, trial based now isn't. There than there ever has. Been so in your view, what? What does what does fix it mean? What do you think it should look like or what's kind of missing? And I we just talked about the communities. And the groups and things. But what's what do you think's missing?

PHYLIP

OK, so the the first thing is the moving to XAS, right? Everything is a service. So that's the first thing that happens. And when we think of everything as a service. You know more and more products or services are becoming a subscription, so that's the first thing. OK, so if anyone out there, including MSP is right, the more you can turn things into a subscription cause everybody's in a hurry , everybody's in a rush. Nobody's got time to manage things and the traditional kind of procurement system. So everybody now just wants a subscription. So I'll be honest with you. Right, I'm a I'm a guy I can't grow one of these fantastic beards like Matt Lee and other people that I know that you know work in the channel so, because I can't.

I'm in the razor. OK, well, I don't wanna go shopping. I don't even wanna, you know, write a list on the fridge for my wife, Ruth, to go get. Me, razors or whatever. It's, you know.

So what do? I do well for the last six years, I think I'm a Harry's razor subscriber and the razors just arrive and they upgrade it and they look after me so. The reason, ladies and gentlemen, always. Look so good and so clean shaven is thanks to Harry’s razors.

IAN

Other places are available.

PHYLIP

Also other brands I hasten to add, but that's moving everything to a service Now XAS, so everything is a service is normally people think we're talking about cloud there or not that's taking something like you already do it with maybe beer and wine. You ma be do it with lots of other things that's in your life, that you subscribe to it as a service, so that's first of all the major trend is the channel needs to respond to people wanting to subscribe to a service so they want to pay for things and consume things monthly so they can scale up or scale down their workforce to suit. And then the other thing that they want to do is they do want their care and the certainty of a contract. So for example, for your listeners that are largely MSPs today, if they're not doing annual or biannual contracts, but with a monthly subscription so they can tune up and tune down all the subscriptions that they are missing a trick. So that's the way I know that SMB's want to consume from MSP's and VAS. The challenge is, is that every MSP will tell you that the vendor is not providing a way, either from distribution, so going back to the traditional three-tier model that we talked about at the head of this podcast. What's happening is distributors and vendors are not providing the flexibility for MSP's to supply to their audience in that way across infrastructure Productivity Tools you know, cloud subscriptions, everything that they're buying, very few vendors out there have got very good MSP models that are built with the MSP in mind and built for the MSP in mind things like multi tenancy subscription, throttle up, throttle down, payment in arrears so people can switch something on and if they like it, use it at the end so that’s what needed from the market to respond to the demand that's here at this moment in.

IAN

So in terms of you know, the change in the way that people are buying, does this mean then that people need to then set their processes up differently and the operations of the business differently to accommodate you know not having that kind of freehold purchase on the on the software or free, you know on the hardware? So we're talking about the changing the way that people are buying, but how does this have an effect on peoples, the operations and the processes that people are currently operating? We know that MSPs are highly process driven businesses. And many of the vendors that they're using are around streamlining their processes and streamlining their systems. And every time another PSA comes out, then it does things in slightly different ways. Are people gonna need to start to look at, you know, organising their processes differently or how they're operations work?

PHYLIP

I don't know if they're gonna need to organize them differently in terms of the core architecture of the way the industry is working at the moment, but definitely more and more and service providers. So hardware, software, cloud, any service that's working into it. The ecosystem that they're providing by default, it needs to include really good API solutions for people to plug into it, right? So at the moment and speaking from a PAX8 perspective, in kind of my role here at PAX8, driving revenue across EMEA. Uhm, the reason PAX8 exists is the fact that MSP's were coming to us with challenges that they had with existing distribution models, with the supply of cloud services. And the fact that they were having to manage the workload for, you know, the typical scenario which is here's a new start starting next week, his name is Fred blogs and Fred blogs needs a laptop. He also needs a Windows premium license and then he needs all the security stack of about eight applications to go around that. For an MSPh that's a huge lift and most then lenders and most distributors haven't got a clue how an MSP works to make all of that happen, with the opening of the ticket. So what happened at PAX 8 is we created two things to make their business go like a rock rocket ship and put more time back in their diary. We first of all created integrations with Microsoft's ecosystem in the way that you can provision by and manage that premium or whatever license. And then the other thing that we did, we embedded it into the PSA. So when the ticket is opened for that job to bring Fred blogs on, the whole stack, everything is integrated with Autotask, Connectwise sync, or whatever PSA that they're using. So the challenge going forward for anybody that wants to play in this space and wins, they need to join our API party, right?

Microsoft are providing all those APIs for us, synchro and Connectwise, and Autotask, and all these people are providing APIs. If vendors are not going to respond by providing APIs, they're pretty much dead because what happens is that now for the MSP creates a manual pop out the other end in their business where now they have to go back to acquire the traditional method. So like I kid you not, I've, We've got MSP that’s coming to us and saying right now, Phyl, if it's not on the PAC, say platform, we don't supply it. Because it creates, it creates a single point of failure in our supply chain. So that's the big thing that's going toa drive the demand for everything as a service. And I think as well, if I can comment on one of the things more and more of the hardware providers out there are doing device as a service. I was at Canalis last summer. Lenovo have plans to bring one out. HP have plans to bring them all out, and there's already companies out there like Das Portal, who supply us at PAX 8. There's companies like that that are out there that are providing a fully managed hardware service. For people that don't want to do hardware anymore, so I can now be a full what we used to call back in the Office products days Ian used to call them brass plating and brass plating was a word that was used for somebody that was in the office products industry. I am that old, OK that literally all they had was a brass plate on their on their house at home. That said, registered office of XYZ Office products is here OK, but they were using the whole distribution network of spices and John Heath, and all of these are office products to supply everything for them and the ecosystem just worked. So we're getting to a place right now that people can start a really great business either as an MSP or an MSP tomorrow and they literally could do it from their own home. If they chose no warehouse. Everything virtual they could do it all that way because of the way hardware is coming. I wouldn't have to handle our MA's. I wouldn't have have to handle dead on arrivals, I would have to do anything on that because I'm consuming cloud products and supplying the devices pushed out to somebody else.

IAN

So with all this wonderful API party, as we've now turned it the API after party account management, you know you still need to have this connection, don't you? You know, we hear all the time. I love the product, but my God, my account manager, all he wants to do is sell to me all the time and it drives me. I love the product, but my account manager is nowhere to be seen. Ohh, I've got a really good account manager. How do vendors and suppliers have to you know, because I, you know, I come from a non-technical background and I kind of see what's going on here and I think it's great cause it's the evolution of the channel and how we can kind of go faster and serve more people. But if we start to lose. A connection with people and with, you know, with the person who's responsible at that you know at that supplier or you know that that software supplier for example, how's the, how do they need to respond to this in terms of account management cause as you've probably heard, there's absolutely vast differences between different people because people hate being sold to but they love to get the value, don't they?

IAN

They do and I also think Ian, the reality of the market at this moment in time is people are buying the service more than they're buying things on price and relationship. OK, so let's go back to our lovely razor supplier. I’ve never met someone from the from the company, ever, the CEO's never phoned me and said Ohh Phyl I value your business so much why. Well, fundamentally, they provided a brilliant subscription services never let me down. Even to the extent that they send me a little text message that says, hey, just check in your home because we are shipping your supply to you next week and I go, oh, gosh, I'm away in Denver next week. I'll just bump that one week and I can do it all off the app, right? It's just really good efficiency operationally in the business. But then if you do other people element on top of that I mean, imagine a world as an MSP, Ian, where you can just crack on with running your business because everything's moving, moving smoothly in the background operationally that you can now focus on relationship building. Both with the people that you'res uing in your business and the companies that are supplying. And that's what we do at PAX 8, right? Is that we f?us on three areas with MSP's, cause MSP's 80. 6% of them on quoting Forrester here now and canalis research that we've done. For the MSP's that we serve they only want to do one of three things, 86% of them, right, they want to grow their business. So they want to exploit into new markets. Maybe they want to get into telecoms and in the converge thing. Maybe thewant tona get into other areas of their business that they think they could grow. OK, they either want to be more operationally efficient. So they're saying things like, hey, I've got 14 people that are working in my service desk or help desk and my L1 through L3 engineers, right. How can I do more with the same? How can I get 2030% efficiency savings out? Of them and that's the stuff that we do really well in our Academy is to help people become more operationally efficient or the third thing they want to do is they want to manage risk. And I'm not talking cyber now. They might have. I don't know. They've got a CTO that is. 58 years of age and maybe considering retirement and he's been one of the bastion of the organization, you know, doing all of what they're doing and now they're thinking, you know, I need to hire a millennial, CT or someone I can build the future on. How do I go about doing that? Because I have nowhere to start, that's a risk to be managed, right. So back to this. Area what we focus our relationship on with our MSP's is not around products and services and what you need this for. And that for this vendor, it's not transactional, it's relational around their business, which is they would grow their business, they would become more operationally efficient and they want to manage risk.

IAN

So looking to the future then looking to, you know, 5-10 years ahead. I'm going to ask you. What should the distributors and the and the people in the channel who want to adopt this approach do and also what should the MSP's be aware of, you know, kind of like the pros and cons of all these different types of procurement methods, really, isn't it? That's what it is at the end of the day.

PHYLIP

As it's been for centuries, Ian. It’s always been, Change or die.

IAN

There you go and that's the end of the show. Thanks very much.

PHYLIP

For well, that's the reality of life. Right? Like the the black cabs in London protested about Uber for a lot, you know. For all the time. But in the end, they decided to kind of hit back on it in their way with whatever, because you can't. You know, protest all the time, you know, let's speak to us speaking on this weekend, I was talking to a retailer, a guy that I know when I used to have retail stores back in the day. I booked it. And I said, oh, how you doing, David? I haven't seen you for ages. He said are you in the business says, oh, we're on our means and you know what he said? This is not working and do you know what he said? So see the problem is, Phyl, Amazon has killed my business.

IAN

It came in one day. It opened up the door and it's and it killed it.

Speaker 2

Right. And the reality of it, that's the problem. That's holding the whole market back is that attitude, the refusal to change right on all of this stuff that is happening in the market that drive towards ecosystem, towards automation, towards AI, is the worst thing we can all do. Everyone that's in our supply chain is put our hot heads in the sand like an ostrich, right? Yeah, change is coming whether we like it or not and it's in several areas, you know kind of global change at the moment where we're talking about inflationary prices that are affecting us and everything you know. So that's really going to affect the big boys in the G7 at the moment, so the companies in the US and in Europe or particular where we're having the stagflation challenges that we're having at the moment change or die, right, that's where it's. If we're not responding to AI and what's happening at this moment in time, change or die. If we're not responding to the millennials are coming, and the zennials are coming to the workplace and you know they want different things from it, change or die, right? It's the same thing. So it's kind of kind of Darwinian. It's in its evolution, but and that's basically what everyone needs to do. So if you know listening to this podcast, you're A should traditional hardware distributor that is not changing and not looking and listening to what MSP's want ask them what they need. Ask them what they need and change or die.

IAN

And I think that's one of the things you guys are that are great at that package is listening to people. I've been to events where people have said I'm not very happy about this and said, well go and talk to him. Have you spoken to him? Well, no, they weren't that. Hang on, you know, and you can't. And it's like we're we're talking about the opportunities. You know, the change, your diet. The opportunities how do we? How do we do some? You know, opportunity thinking about this, how do we make this work, you know. You are not going to be a bank manager, right? Because AI will or the way that technology in banking is, but what are the other opportunities? What other roles are there? How can we become more creative with, you know, the access of all this great information that people have got and that's where people need to be more open to change and more receptive and understand. How they can benefit rather than be fearful as as you know, as you just said there about your friend, Amazon's killed my business well and I didn't. You didn't adapt. You know, and look at look at the post office now, you look at the way that distribution and we could. Literally have six or seven deliveries a day from different people who are probably charging, you know, because the post office hasn't adapted and it hasn't moved forwards and and all of those sorts of things. So it's around having that I think you just touched on a key point there about you know, having that open communication channel with your distributors and with the with your suppliers. You know and talk to him. If you're not talking to you're not building. One of our clients said to us once I said, what's the easiest way or what's the most important way? Well, the most important thing for you in getting your business over 7. Figures and he said vendor relationships absolutely vendor relationships because they're going to help you because they obviously want you to, you know, sell more of their stuff. But if you sell more of their stuff, then they're going to be, you know more open to supporting and listening to your views and it's it's so important that that we're like that whole relationship thing. So don't you know, while we've talked a lot about technology and how it's moving and AI and plugins and all this automation, there is still that thing that is that connection, you've got to have that connect. And with your the offenders, your connection with the people that you're working with and the connection with the people that work with you, you know as well in your business as well, because if you see a lot of people I haven't spoken to them for a couple of days, I'm sure they're alright. Well, they won't be there one day if you carry on people like that, you know, there is, there's even more drive. I think now that we need to build on relationship building and not let that you know become an AI thing.

PHYLIP

I think absolutely. And and I think for any trusted advisor, right, ou know, and particularly your audience here in, in terms of MSP, they need to get closer to the customer and never has the quarterly business review and the strategic annual review never has that been more important so. Look listeners, if I can address you directly right now, think right now for the you know 100 and 5200 or whatever customers that you're looking for, looking after right now. You know, I know you're thinking in your business. Let's go and kind of grow it and the challenge is often getting more customers in, but let's not lose any eggs from our existing baskets right now. Let's protect our customers. And you know Ian coaches, Ian and Stewart coach people on this, but it's like keep the business, you've got retention before acquisition. And when is the last time you had a QBR with them and the last time you had a strategic annual Review with them? Get that work done. Make it a non-option to get that done right, because that's what differentiates your business from the automation junkies and Amazon and the big players and everything is.

IAN

You know, I could give you a big hug right now because the podcast that's going to follow this one is a mini series on account management and it's on exactly that subject, because it's so important.

Don't go looking for you worry about sales and marketing new leads, many of our clients who join us don't even bother with or that we don't even get round to sales and marketing for at least nine months. Because they've got so much opportunity kind of with their within their existing client base you just because you just go farming all the time, all the time. We're just going out there. And you don't look back in the in the in the rearview mirror. Phyl, it's always. It's been an absolute pleasure talking to you today and getting your insights and wisdom into the channel. What's going on at PAX 8 at the minute. What's the things coming up in the next couple of months that people need to be aware of to help them out?

PHYLIP

Well, the team is working really, really hard on beyond, so I'm recording this right now as I am packing my luggage to jump on a plane to Denver later on this week, so I'm not sure when this airs, but there's a lot of announcements. That we will be making. Some of you will be aware already that we, thanks to some negotiation by our team and crowd strike is a key addition. We announced that the crowd strike announced their partnership with us to the market at the recent earnings call and so listeners to this will be aware of all of that across social media. But as well as that back to our channel is broken messaging. Uh, we are continuing to drive the market towards the modern, what we're calling the Federated marketplace, so you'll be able to see a lot of content that will be available on our website. At the moment. Over what that is. So in terms of PAX 8 and the energy and cash and innovation that we have put into creating the best marketplaces for MSP's to be able to buy, manage, provision and analyze their cloud services, there's lots of announcements that we've made for our ecosystem and Federated marketplace that they can learn about there. So that's a key thing and sometime in the future we're hoping to bring beyond into the regions. So at the moment we only have beyond 2023 and beyond 2024 that will be next year. And again there'll be early bird opportunities for people I've privileged this time. I think there's six or seven partners across the EMEA region. That I've booked to join us over there, but next year there's a real great opportunity for people to come and join us and find out what's going on. At PAX8 there.

IAN

Just on the you just you just mentioned that is your website with that you know there's a lot of stuff going on with PAX8. They're always is, but there's a lot of information coming out there about some of the, you know, the partners that you're working with and developments is the website, the best place for people to get that information.

PHYLIP

Yeah, there is, so there's a specific micro site for beyond that is a micro brand with us or people can go to pax8beyond.com and have a look at the beyond community. Led by Rob Ray, who the people will be aware that joined us at PAX 8, which is superb, to have him leading our charge and leading the Beyond Conference. But for all others.Things, pax8pax8.com just land there and take some time to have a look.

IAN

Follow you all on the socials and away we go. And I nearly forgot. Before we go last time we spoke, you were talking about your expansion across Europe. Now I know that I think between you and Greg Jones, you are in competition for Air Miles. Where's where is where's Phyl? On any given week. It's quite incredible. So of keeps you. Keeps you motivated cause you wonder where it's going. I've seen a few trips over to Amsterdam and the and the like. How's it all going over in there? A bit closer to.

PHYLIP

Home in Europe, so typically on the global travel. Thing I can't keep up with Greg. Floor with me for that, I think I think this year. I'm scheduled to be. I'm sleeping not in my own bed for I think about a 150 days this year, which is not ideal, but my wife loves it. Apparently when I want to go home.

IAN

Yeah, yeah, yeah.

PHYLIP

But I think Greg must be up over 200 days. A year this in the hotel bed which You know, kudos to him. But yeah, gold expansion is growing and well, obviously you're aware and the market is aware of all the acquisitions that we've done so. We now have nine offices across EMEA, but probably the most exciting thing that we've done from Baltics area over there in Eastern Europe, all the way across to and the UK and Ireland, which is the westernmost part of where I cover and I'm responsible for of taking our mission briefings, which is the best way for existing partners to go deep with us. Taking vows to Europe has been great and again, visit PAX 8 website for information there. Mustin Thomas leading our cybersecurity masterclasses. So again that has gone European. We have the first one in Kerala in the Netherlands and we got more of them scheduled coming up and then we are rolling out PAX8 Academy as well. So PAX 8 Academy is kind of some people will be aware of sea level operations. So it's like it's like IT nation evolve or other kind of schemes but very much linked around the PAX8 ecosystem in the way that we work that so there's a community that's involved and driving and that so Michael Escalera has just come and joined us to drive that so. Really exciting stuff happening.

PHYLIP

Yeah, lots of stuff, thank. You for stuff going on. Well, well done. And if you've, if you've been listening to this show and you wanna learn a little bit more, Phyl and I had rather interesting couple of episodes of the podcast 94, which is where Phyl shared with us is life changing event, which was just absolutely incredible. A lovely story there. Go and listen to that one episode 94. And then what happened at the? End of that show, if any of you remembered, Phyl turns around and goes. I want to interview you in cause you've got quite an interesting back story as well. So it took a couple more. So in 97 we we then did one called being open, honest and. Real and that was absolutely. It wasn't hilarious, but it was a great couple of episodes, so go back and listen to those again and they and they're really good. Listen, they're good fun, great fun, good friend. We got some. Got some great relationships going on here with the with the guys in the channel. And thank you ever so much for your time and effort. Putting the show together this Afternoon. Good luck. At beyond safe travels and I look forward to catching up with you soon, you take care now.

OUTRO

So I hope you enjoyed the show. If you did, I'd love it if you could leave a rating and review on your favorite podcast platform. If you want to learn more about how to take your MSP to a million, or if you're already there, go faster then come and join Stuart Warwick and myself in the Scale of Confidence. Facebook group. Link’s on the Show Notes. You go and enjoy the rest of your day and. I look forward to connecting with you soon.