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Welcome back to the Microsoft Partner Network Podcast, where we speak with industry leaders and partners about the big ideas shaping business and technology today. Past episodes feature interviews with inspiring speakers such as David Meerman Scott, Jo Burston, Carol Roth, and Tim Hurson, about everything from marketing to management and the future of the Intelligent Cloud.
In today’s newly released episode, we talk to MPN influencer and entrepreneur Kevin Conroy, founder of Blue Rooster, about how he took his business from an SI to an ISV, and how the new SaaS model is changing how partners do business.
The Realities of Building a Practice
Kevin knows how difficult it is for a business to pivot in order to meet changing customer demands. He regularly works with partners to help them build and grow their own cloud practices in the most effective and efficient way possible. He is familiar with the challenges many CSPs and MSPs face, as well as the successes at the end of the long road to profitability.
In our conversation, Kevin spoke about how the world of technological services is changing almost as fast as the technology itself. We at Microsoft have been speaking a lot about this change in profitability models as well, particularly about it being important for businesses to leverage their managed services to grow their business. The MSP model, for those who are not familiar with the term, is when a company offers any solutions they provide with a full services team to support clients in full.
Common Pain Points for MSP and CSPs
Kevin noted that many partners run into similar difficulties on their way to building a successful managed service or cloud service practice. They often struggle with hiring the right talent, pinning down a good pricing model, and addressing customer needs as quickly and efficiently as possible. Here are a few tips he offers to help address these pain points.
1. Acknowledge that hiring quality talent comes at a price.
“The pure services play is getting harder. I see it in the partners who I work with all the time. They ask, how do you keep your billable rates high? Paying people is expensive and making that margin is getting harder and harder.”
– Kevin Conroy, Founder of Blue Rooster
The technology industry has long been struggling with a talent gap, and as new technologies are revolutionizing businesses at a break-neck pace, it’s difficult to make sure your workforce can keep up. Good workers come at a price, and working that into your pricing model is the only way you’ll stay afloat. Kevin says that in order to maintain a good margin on your services, it’s a good idea to leverage your IP. That will help differentiate your company from your competitors and keep your business relevant.
2. Look past Monthly Reoccurring Revenue (MRR).
“The marketplace is definitely changing, and you don’t need to look any further than Microsoft to see that. You buy Azure on a consumption basis. You buy Office by seat count. What the marketplace wants is more of that seat pricing, because it’s more cost effective. What I work on with partners is how to look past that MRR number to start making their businesses relevant and see the big picture.”
– Kevin Conroy, Founder of Blue Rooster
Kevin explains that when partners transition to the SaaS model, he is seeing nothing short of phenomenal growth. But in order to do that, partners need to drive volume to keep prices down. It’s important to break down the barriers between your business and your customers that keep them from fully investing in your product or your services (or both). Because with these disruptive technologies, you certainly don’t want to be the company that didn’t make the change.
3. Be patient with the Enterprise customer.
Kevin believes that while Enterprise might be the last customer type to move to the cloud, they’re coming in a big way. The fact is that it’s no longer cost effective for businesses to use data centers or on-prem software. And the ones who are still in that phase, are more likely to be considered “behind the times” by their own customers. With that in mind, partner should expect that enterprise customers will become a substantial portion of their market, given the opportunity and the support they need to do so.
“One of the lessons with Blue Rooster was that we could never figure out how to go down market, meaning the small customers. Our solution from a services perspective was way too expensive to do that. So, you need to really look at your customers and figure out how you are going to do what you do in a way that makes sense.”
– Kevin Conroy, Founder of Blue Rooster
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For a full transcript of today’s podcast, please see below.
Rachel Braunstein: Welcome to the Microsoft Partner Network Podcast. Every week, we bring in industry leaders and Microsoft partners to talk about the big ideas shaping business and technology today.
In today’s episode, we speak with Kevin Conroy, the President and Founder of Blue Rooster, about change management and the new world of SaaS pricing. Welcome, Kevin, we’re excited to have you here. Kevin is an all-star partner that we love to talk to. I wanted you to introduce yourself to the audience, tell us about yourself. You’re an entrepreneur truly at heart. You have a wine company. Let us in.
Kevin Conroy: Hey, everybody, Kevin here. And thanks for inviting me; I really appreciate being here. Love doing these things. Yeah, so Blue Rooster was a labor of love. We started in 2000. We were doing UX before anybody even knew what UX was on top of SharePoint, really trying to drive adoption of SharePoint and how do we help big companies and small companies figure out how to use SharePoint. And that really kind of built itself into this really interesting business around user experience and user interface and all the moving parts there. Services company and over the years it got more and more complex and I think the process for building on top of SharePoint got more complex and in 2014, 2013/2014, really the market was shifting towards how do we make it into a product. The cloud was on the tip of everybody’s tongue and so we built it into a product and that product got acquired. I’m doing a bunch of consulting now and it’s been super exciting.
Braunstein: You make it seem very simple, Kevin.
Conroy: No, it wasn’t. There were a lot of speedbumps along the way and I think the topic today for the SaaS pricing, I call it voodoo MRR. You know, how do we help partners figure out how to price solutions in the new kind of world of work and the new cloud environment and that’s where I’m spending 99% of my time right now. So, it’s pretty fun.
Braunstein: So, before we talk pricing, what’s kind of amazing what you did was make this pivot. And this is what we talk a lot to our partners about—how do you move from being a systems integrator, project services, and moving into IP? You said you developed a product. What’s the product called?
Conroy: It was called Rise Foundation and Proficient bought that product. It’s called Rise now by them.
Braunstein: So, tell me, how did you do that? What are the things, what were some of the problems that came up?
Conroy: Yeah, I think the big one was we were working with one of our clients—big multinational client—and they’re like can’t we make this easier? Can’t this be simpler to do? Everything was taking very long to do. They were like I can buy Azure-based services and use that server in minutes after spinning it up. Why does this take so long? So, we fundamentally looked at our business and said how can we make it easier to work with Blue Rooster? And that’s what started that conversation. And really, it was all the different conversations that were happening at the time at WPC and the SharePoint conferences and seeing the move to the cloud and Office 365 was pretty new. But there was a lot of movement to move mail to Office 365 and so the wave there was this was going to happen eventually, we’ve got to get on board with it. But it was a process. It took us a long time to kind of turn the ship, so to speak, but then I decided to kind of go all in. I don’t know if I would make the same call today. I’d probably do it a little differently. Hindsight’s obviously 20/20. But overall, I’m very happy with how we did it and what we did. But it’s a big move for a lot of partners and I think that’s a strong theme that partners reach out and call me about all the time. There’s a big team here at Microsoft we work with, the Influencers, and we’re trying to help other, you know, how do we get more partners to kind of look at the big picture and where things are going, and that’s a focus.
Braunstein: So, why in hindsight would you have done it differently? What would you have done differently?
Conroy: I think you can drive a services business side by side with a product business. I think at the time everybody was saying product, product, product. You can’t do both. I think that’s not necessarily the case now. I think there’s a much more agreeable marketplace out there that you can kind of run these things in parallel. A lot of companies are doing it very successfully. I think the companies that are managed services have a much easier time putting IP out there and saying these are things to help our businesses. But I think the pure services play is getting harder. I mean, I see it. I mean, these are partners that call me and we discuss all the time and there’s a bunch of them out there. How do you keep your billable rates high? I mean, just getting down to brass tacks. You know, what you have to pay people nowadays is expensive and making that margin on those billable hourly rates is getting harder and harder. Those are the stresses on the business. At the same time, you have the cost to do cloud-based business is decreasing every day. So, those are the realities in the IT, in the CIO office right now.
Braunstein: I think that billable rate you’re talking about is kind of interesting. Are you saying that you need to hire really great talent and that they’re more expensive? Or kind of go into that a little bit.
Conroy: Yeah, that’s spot on. So yeah, you’ve got to go hire the best and the brightest.
Braunstein: And that’s hard to find because there is a talent gap.
Conroy: Yeah, I mean, there’s like—if we could draw the X and Y charts here, we’ve got to get the really smart people. There’s really big companies out there going after those really smart people so that’s another thing that’s hurting you. You have, like in the local Seattle marketplace, we have all the big tech companies—the Amazons, the Microsofts, and everybody else, and the Googles coming in—so, they’re all looking for the same people. You have to have really amazing benefits. So, these are all your cost drivers to attract these people. And then your client is saying hey, why are you charging me, I mean, we even hear why are you charging me $150 an hour which is really kind of a base level rate and you kind of laugh going my costs are getting close to that. I’m paying somebody at just about that cost basis when you look in your layered costs in a metropolitan market like Seattle, San Francisco, metropolitans like those. So, yeah, it’s very difficult.
Braunstein: So, when you’re working with partners and you’re thinking a little bit about making those pricing models— I think we can talk about the SaaS kind of piece—how do you do that?
Conroy: So, there’s a couple of things that I see continually is that there’s still, I would say, the perception in the marketplace with Microsoft ISV partners to continue to price things based on server pricing or the typical enterprise agreement where it’s a 1, 2, 3 year agreement with 20 to 30% services percentage tacked on top of that. And for the most part, there’s thousands of Microsoft partners out there that have built their businesses that way and have been very successful at that. And the marketplace is definitely changing. I mean, we need not look any further than Microsoft. You buy Azure on a consumption basis. You buy Office based on a seat count, a SaaS price. And I think what the marketplace wants is more of that seat price. What is it going to cost me to add that extra user? And so what I try to work on with partners is how do you get over this MRR, this monthly recurring revenue number to start making your business relevant and see the big picture? A real great example is I work with a client in Portugal, BindTuning, I know you know Beatrice out at BindTuning. She’s wonderful. And we’ve done some amazing work out there transforming how she prices her solutions into a SaaS model. It’s taken us a while. I mean, I think you have to—there’s a little bit of Kool-Aid to be consumed here but we’re seeing the growth, the exponential growth is just nothing short of phenomenal. But you’re getting away from—I’ll just take kind of an extreme—when you start looking at the model of you’re just taking your enterprise agreement and saying I’m going to charge this out per person per month, a lot of partners are in the double-digit numbers, you know, the 20s, the 30s, the 40s, the 50s. I tend to look at it a little differently. If you can go buy the full Office 365 Suite for $5 and you’re getting Excel and Word and all these other things, why are we charging all these other? So, really bringing that down and getting that cost down into the single digits and really a small number to drive volume, not necessarily the quality. I don’t need $50 a user; I need $1 a user and I want millions of users every month. And that’s where we’re kind of going. I think BindTuning is a great example. We’ve definitely proven the model out. It works. I have a couple other partners that we’re working on the same thing. But I call it voodoo. There’s a little bit of—there’s a lot of trial and error.
Braunstein: That’s the official term.
Conroy: It’s a technical term—look it up. There’s a lot of work that goes into that. I build pretty extensive models to look at this. What’s the trend for three years? Are you going to see a decrease in revenue your first year? Maybe, I don’t know. I don’t think so. I think you’re going to be okay. You’re really going to be okay. I think you start to look at the momentum for those recurring numbers, I mean, the market has shown and not just Microsoft. You look at Salesforce, you look at some of these other companies that are very, very successful. How do you break down those barriers to have companies adopt your products easier? And that goes for your services, too. That’s it right there. We see all these disruptive technologies right now, the Ubers and the Amazon, AWS and all these other things that come into non-traditional marketplaces and they make it very disruptive. Don’t be that company that didn’t make the change. That’s kind of my message.
Braunstein: And part of what you’re talking about is scaling. You’re building the pricing and the SaaS model in a way that it can scale. And that is the golden ticket, it seems. So, when you work with your partners, when you’re developing these pricing models and these solutions, is it very unique? Or are there some common threads?
Conroy: There’s some common threads. I think the ones that I really like to latch onto are the ones who are like oh, we only need to license it to the actual users. Well, no. Let’s not look at licensing 10 people in a company. Let’s look at licensing all thousand people in the company because once you kind of get that beachhead into the company, you can push other things into that person’s hands. So, maybe your products are very unique solutions. So, maybe only the content creators need it, for example. But what about all the other people that could just consume that information with maybe a graph or a chart or KPIs or something around that that makes sense in that marketplace. I don’t know what that is but those are the conversations that I like to have. How can we extend your model? How can we expand your model? And make it so it’s not a huge cost driver for their business day to day? And I think you’re looking at—I say, and it’s not fair—I say pennies per user per month. That’s what we want. We want pennies per user per month. I think that’s a big conversation for some companies. I think even like with BindTuning, she had to—Beatrice, you know, very strong-minded business woman in Portugal which, this gets back to my—I kind of have fun with this one—I like to say it’s a unicorn. It’s this great technology and it’s in Portugal. You know, just about a socialist country. And we’re driving some really cool innovation there with a SaaS product. So, it’s like what doesn’t belong here. But we spent a lot of time. We spent a lot of time talking models. We spent a lot of time talking about are we moving the needle? Do we see the growth? Does it make sense? Are people buying it? And then also, too, you have to look at what the customer base is saying, too. We still get the customers and they’re usually on the enterprise side saying I want to buy the product outright. Can’t you just put support on the backend of that? So, you still have a lot of the big guys that want to do it that way but the SMBs and the mid-market customers, they’re all for it. They’re looking for a price per user and they’re looking for a low price per user. You get some velocity in your sales channel and that makes your business easier. You’re easier to transact with and that’s the other thing, too. Look at your transaction costs. What does it take you to close a deal? Time, money, these expensive people. Sales people are expensive. Websites are expensive. Technology, all the marketing stuff you have to do. Staying compliant with Microsoft. All of that is expensive. How can you spread those over a bigger, broader market? So, that’s a big piece of it.
Braunstein: So, you need a lot of seats.
Conroy: You need a lot of seats, yeah.
Braunstein: You need a lot of seats. Some of that, though, you’re talking about, too, is just the customer. Figuring out what is that story and what you’re saying is they’re wanting a low price per user, right? And you find that to be the case with the partners you work with and the customers, that’s a pretty common?
Conroy: Yeah, and speed, too. Like when somebody’s reaching out to engage you, Mr. Partner, Ms. Partner, whatever you want to look at this, they have a need. Fill that need quickly. Make it easy. Don’t make it hard. I mean, back in the day, Blue Rooster, we used to literally get on airplanes and go see these people and pitch them these big projects and sell these things. I look back at it now and I go gosh, it was so hard to do business with us. You see that today. You even see that—you know, these big enterprises. Hey, you want to come make a presentation to us? How about I just do a live meeting? I can do this in 30 minutes over a web connection and I’ll show you the value. If you don’t get it in 30 minutes, we’re probably not the right fit for you. We spend a lot of time on that.
Braunstein: So, truly is a little bit of the olds and news, right?
Conroy: Oh, yeah. And it’s changing.
Braunstein: And that is the digital transformation, I guess, that we at Microsoft keep talking about. But you see it very often. It’s real.
Conroy: Yeah. And I think the enterprise customer may be the last customer coming this way but they’re coming, and they’re coming in a big way. The number of hybrid deals that I see on a daily basis with BindTuning are pretty astronomical. The number of companies that said hey, we’re going to do these work streams in the cloud, you didn’t hear that five years ago. I don’t know if you even heard it three years ago. And now it’s reality. Props to the Microsoft team, especially the SharePoint team. They’ve kind of rebuilt and resurrected what people said was a dead product and they’ve done an amazing job with it. It’s fantastic. It works. The 365 offering is unbelievable. And that’s another message for partners, too. If you’re relying only on the old school server business at Microsoft, it’s time to reevaluate your business because I think if it hasn’t hit your bottom line today, it’s hitting because those customers are—it’s not cost effective any longer to stay out of the cloud. It’s just not. If you’re still with a customer that has a big data center, you’ve got to really look at what’s going on with that leadership, too, because it’s changing.
Braunstein: It kind of indicates that they could be a little.
Conroy: Yeah, like what’s wrong with that business, right? You know, it’s like—
Braunstein: The writing’s on the wall.
Conroy: Yeah, it’s kind of crazy, you know. And there’s still a lot of people that say well, look. AWS went down this week. Yeah, there’s still some human stuff that happens in the marketplace but for the most part, it’s very positive. I mean, Azure is amazing. 365 is amazing. Dynamics is now in the cloud. So, I think there’s all these work streams that you have to look at and say this is not a fad. This is not Y2K. This is something way more important. Did I just date myself?
Braunstein: No, you didn’t date yourself.
Conroy: That was only 20 years ago.
Braunstein: Do you think—you talked about with the enterprise, you talked about SMBs. I mean, when you’re talking to partners, do you find that they’re—is there a certain customer that might be the best to go after given your kind of capabilities as a partner? Certain matches are made better or certain opportunities or it’s everybody’s fair game almost if you can kind of speak well with your customer and deliver a solution?
Conroy: Yeah, I think one of the lessons at Blue Rooster was we could never figure out how to go down market. Meaning, we couldn’t figure out how to get smaller customers. The 100 person, the 500 person companies which are big. Those are big companies. You don’t realize it. Like you’re 500 employees? That’s a really nice size company and that has some market velocity and momentum and that’s a—and we couldn’t figure it out. Our solution from a services perspective and the people that we had, way too expensive to do that. So yeah, you’ve got to look at that and say how do I figure that out so it makes sense? It’s not selling your product at 50 bucks a seat. It really isn’t. It’s selling—when you’re in that—if you’re 150 employees, you want to spend about 10 bucks a year on it. It’s literally less than a dollar a month. Those are conversations that for a lot of partners you’re like what?
Braunstein: I kind of, when you just said that, I’m surprised that low.
Conroy: Yeah, but I have data that I could sit down. I could sit down and show you and you’d be like oh, wow. That makes a lot of sense to go and have 100 of those accounts. And they take very little servicing and that’s providing a nice piece of revenue. And your margin on it is going to be very nice and you’re going to be kind of shocked at how that works. But, not to keep plugging BindTuning, I’m not trying to dominate this conversation with it, but that’s a 12-person company. Let’s talk about that for a minute. You don’t need this overhead structure to support all that. And you really look at the velocity. How much velocity? How many seats per month are you servicing? And look at your current business and say okay, I have five enterprise customers and four CADUM accounts and three—and just look at how many people you’re servicing. What kind of revenue are you getting when you run out the math? I think you’ll be surprised when you see it.
Braunstein: Yeah, I’m sure I would be. What is also important, right, though, is doing managed services in some sense, right? When you’re talking with your partners because you’re talking about getting the seats, what happens after you do that?
Conroy: Yeah, I think the biggest thing I hear, and I talk to a lot of accounts both as part of the influencers group at Microsoft and also my work with BindTuning and other partners, I’m talking to their clients all the time. I am really surprised every time I talk to somebody that said well, I used to have a SharePoint team or I used to have an Exchange team or I used to have a bunch of developers on staff and they don’t have that anymore. So, now they look to the low-cost model. They’re looking to a partner to do their managed services. They’re looking for somebody to help them with desktop support. They’re looking for somebody to help them with Office 365 support. Can you help them provision Azure and make that easy for them? So, the managed services business, in my opinion, is the easiest low hanging fruit out there. And that’s not just—you’re not just going after the SMB business. I’m not talking about the five-person hairdresser. I’m talking about the 50 person company, the 100 person company, the up to 500 to 1,000. I mean, those are companies that have real pain every day that are not allocating the budget for big IT staffs anymore and they’re saying hey, you know, we’ll do that on a SaaS pricing model. And I think you’ve got to look at it as not doing it as hey, I’m going to charge you $1,000 a month. That doesn’t really resonate right now. You get in front of a CFO, especially a modern CFO or COO, they’re going to want to have some sort of variable component there. But it’s a big deal. And the companies that are doing it, they’re growing really nicely. And then they’re figuring out how to take IP and package with that, too, and automate things and some of those functionalities. We’re seeing it, it’s happening.
Braunstein: Where did the name Blue Rooster come from?
Conroy: Wow, I haven’t had that question—I swear, true story. In my previous life, I was a contractor out here at Microsoft and we were doing a bunch of projects. This was back in the day of educational conferences and stuff and that’s kind of really where Blue Rooster started. I was working on a project and somebody referred to me as a rare bird and blue is my favorite color. I went and googled rare birds, there was a rooster, so that’s where it came from. And then it kind of all just fell together. I kind of met this crazy Russian guy on a bike tour in Europe. He happened to own the URL BlueRooster.com and I just kind of random and he’s like oh, I’ll sell it to you. So, literally, I bought BlueRooster.com and rebranded it. So anyhow, that’s a true story.
Braunstein: I love that story.
Conroy: Yeah, it was pretty funny.
Braunstein: Okay, my other question is about your wine company.
Conroy: Brother-in-law is a winemaker down in Napa. Rock Star, Mike Blaum. He started a winery down there called Medorum. My sister is a CFO in the wine industry and does Joel Gott Wines and a bunch of other fun stuff and her background was Diageo before that. So, one day my brother-in-law was like, hey, let’s mix a little wine. So, we did make a little wine and we did that for 10 years. And I still got a bunch of it and it’s amazing. Another friend of mine was doing a blind taste testing here at Pacific Place, I think, in the 509 cab. Our label is 509.
Braunstein: 509 cab.
Conroy: 509, yeah, it’s a play on the area code for Eastern Washington. And we did a blind taste test against all these wines and crazy, we came out as the number one wine.
Braunstein: That’s awesome.
Conroy: Yeah, but I just got married down there, too.
Braunstein: Oh, that’s awesome.
Conroy: Yeah, it was pretty fun to get married in Napa and get married in the vineyards. Amazing experience. I loved that.
Braunstein: So, you have a wine company. You have a rooster company. You continue to iterate as you see the changes coming. That’s what I can learn from you, Kevin. What is some advice that you can give to partners as they’re looking at their business, they’re looking at their pricing, they’re looking at potentially selling to a company which you’ve experienced. What are some key pieces of advice?
Conroy: Yeah, I think there’s a lot of change right now in the Microsoft partner community. I know—we’re a part of this Influencer’s team. We’re trying to make sure we’re kind of on the pointy end of the spear to make sure we’re figuring these things out. There’s a lot of momentum around helping partners change. I think there’s a lot of resources. I think if your business is still very much stuck in the enterprise agreement days or the selling a packaged solution and selling it outright, there’s resources to help you kind of modernize your business. And there’s a lot of people like me who are consulting and helping people out. I think it’s a great time to be a Microsoft partner, not without its share of scariness and change but I think it’s really exciting what’s happening. I think the leadership here, too, has done an amazing job of putting Microsoft back on the map as far as this is where the future is and kind of get on board with it. I think that’s very exciting. But it’s time to really look at your business and kind of figure out what you’re doing. And a lot of us, like myself, we had Blue Rooster for 15 years before we sold it. You start getting into that many years of being in business, you get a little static. You get a little stale, maybe a little complacent. It’s time to mix it up and kind of review what you’re doing. And events like Inspire are really important, I think, to go to and hear the message. There’s some really strong messages. I remember one of the WPCs I went to and there was a Gartner analyst there talking about the growth of the cloud and I just remember going we know nothing about the cloud and how does that impact our business? And then we had a big enterprise customer—total sidebar story here—that said the day that I use the Microsoft cloud is the day we’re out of business and now they’re more than 50% of the cloud. I’m not going to name the company. But I remember the CIO at a dinner one night saying that; I’m just like okay. Why would Microsoft know more about the cloud than us? It was just one of those funny conversations and now you look back at that 10 years later and you’re kind of going yeah, it’s really a big deal now. And if you’re a partner company still taking nine months to close transactions or six months to close transactions, there’s some conversations that can be had there and your sales cycle and your velocity could be shortened and increased. So, I’ll say that much.
Braunstein: Well, that’s awesome. It seems like there’s a lot of opportunity for partners out there. Thank you for coming in, Kevin.
Conroy: Hey thank you, this is a lot of fun. I always love coming and talking to you guys. Obviously, I have a problem talking, too. It’s been fun.
Braunstein: Thanks for listening today and check out the podcast description for show notes. Be sure to subscribe and keep in touch with us on LinkedIn, Facebook, and Twitter at MS Partner.