I'm sure you know the golden rule:
Do unto other as you would have then do unto you.
Here's how that applies to IT consulting:
Do Unto Clients as You Would have Vendors Do Unto You
I read a lot. And I try to keep up on the general advice that goes around in our industry. I've noticed two interesting topics recently that should be discussed together, but tend to be discussed without regard to one another.
1. Many people are very angry that Kaseya has purchased one of the "tool" companies they work with and is forcing everyone into three-year contracts. The general response is anger and indignation. "Those evil, greedy bastards are trying to keep me as a partner by forcing me into a three-year contract."
Forsooth, shame on them!
and the other common discussion . . .
2. More and more, MSPs are encouraged to sign three-year, auto-renewing contracts with their clients. The benefit of this is obvious. Recurring revenue is better than break/fix because it's treated as if guaranteed.* And, obviously, one year is better than thirty days. And three years is better than one year.
Ultimately, both moves are plays to increase the value of a company for buyers and investors.
Let's lay our cards on the table here. Seems like the general wisdom is . . .
1. Vendors are evil and greedy if they force partners to sign three-year contracts that auto-renew.
2. Managed Service Providers are wise to get clients to sign three-year contracts that auto-renew.
There are handy cliches that could be applied here. You can't have it both ways. What's good for the goose is good for the gander. Instead, let's look at what's really motivating all of this. One way or another, it comes down to money and innovation.
Many vendors, of which Kaseya is one, find themselves in a market where they need to provide predictably high profit for their investors. One way to do that is to tie the hands of their so-called partners in order to show greater long-term guaranteed* revenue. Growth is a separate story. For now, they check the box that says guaranteed* revenue.
Is that necessarily evil? No, of course not. Many of us have signed 1- and 3- and 5-year contracts for consulting or jobs. Pretty much everyone signs a 30-year deal for a house and a 5-year deal to buy a car (or a 3-year deal for a lease).
But this is a service business. While there are many ways to get out of a contract, and anyone can sue anyone for anything, pressuring so-called partners into a three-year contract feels unfriendly. It makes people say things like "so-called partner" instead of partner.
Historically, vendors have not been successful at tying the hands of their partners. They had to prove the quality of their products and customer service year after year to grow a family of dedicated partners. Thus, the value of their company was based on the loyalty of their partners/users/resellers. In a very real sense, the partners were devotees - not prisoners.
A three-year contract feels very much like being held prisoner. It's not inherently evil, it's just not the way we've done business until recently. As a minimum, it's not a very friendly way to do business.
In technology, more than half of everything we do will have changed in three years. It's about two processor life-spans. And pretty much everything we do will change in five years. So a three-year contract hurts an IT service provider's business if it keeps them from using newer, better technology.
And, as the last ten years have demonstrated, it probably means that the vendors will be less responsive on the customer service front, less innovative on the technology front, and FAR less interested in the partners or end-users except as a measure of "units" that translate into revenue.
Now, about Those Clients ...
If it feels un-friendly and un-partner-like to be pressured into a three-year contract, how does this feel to your clients and prospects?
Yes, it might make some good financial sense if you can guarantee* your recurring revenue to a potential investor. But why would your clients have any less anger and frustration than you do when it comes to three-year contracts?
Are you evil for proposing this? Of course not.
But are you unwise? Possibly.
In my managed service businesses, I tried several things (including one-year contracts) and settled on contracts that auto-renew forever, with a 30-day notice required to stop the contract. That amounts to 30-day contracts. It put the pressure on my company to provide excellent service. To my knowledge, we never lost a client because it was easy to leave. More commonly, clients literally never left. They stayed for decades.
We also settled on three-year contracts for HAAS - hardware as a service. This made sense because hardware was involved. And clients did not consider it unfriendly because they were often considering a three- or five-year lease as an option.
Today, everyone seems obsessed with mergers and acquisitions and market value. That's fine. But your clients deserve a level of commitment and service without regard to the length of a contract. One way that you show your commitment to service is by not requiring long contracts.
At a minimum - Don't be a hypocrite. If you think forcing your clients into three-year contracts is the right thing for your business, please don't claim that it's a horrible thing for your vendors to do to you.
Just my two cents.
* Nothing's guaranteed. We're not going down that rabbit hole right now.