Q&A: Carousel Execs On The Cisco Partnership And How OpEx Models Are Changing The Channel

Carousel Execs Talk Partnerships, Acquisitions, Sales

Fresh off forming a new partnership with Cisco and acquiring Atrion, red-hot solution provider Carousel Industries is targeting the $1 billion revenue mark as it shifts its focus from hardware to services. Last year, for the first time in Carousel's 24-year history, service revenue outpaced product sales.

"We have customers saying, 'No more CapEx. I want to buy everything OpEx. That's just the way I'm going to buy going forward,' " said Jim Marsh, chief revenue officer and co-owner at Exeter, R.I.-based Carousel, ranked No. 64 on the CRN 2016 Solution Provider 500 list. "I would say a minimum of 50 percent [of our clients] are having that conversation -- 'Get me out of IT.' "

Carousel CEO and co-founder Jeff Gardner and Marsh recently shared their thoughts with CRN about managed services, the need for Cisco, how Avaya is still Carousel's "fastball," the importance of being privately held, and why size and scale matter in the channel. Here is an edited excerpt of that conversation.

What percentage of customers are you seeing wanting to buy OpEx versus CapEx?

Jeff Gardner (JG): We have customers saying, "No more CapEx. I want to buy everything OpEx. That's just the way I'm going to buy going forward."

What's surprising for me is, for some big deals, it's not about money. It's not about five-year ROI. These cloud deals a lot of times are more expensive. A lot of these times these cloud deals are more expensive on a five-year total cost of ownership.

Why are they paying more?

JG: They're still [doing it] because it's easier and it [relates] to speed. You don't want to buy a piece of hardware that three years from now someone says, "I'll throw it in the garbage because that's not the latest and greatest thing anymore versus being in the cloud." But they're paying a big premium to get there.

What's the challenge for Carousel in this OpEx model? And does it make it more difficult to be successful in today's market?

Jim Marsh (JM): Because of the cloud, you can have five MIT guys pop up a cloud platform and they're in business literally tomorrow. If you look at a lot of the cloud providers and you pull back the sheets, they're 15 million dollars, and they're trying to go out and sell enterprise solutions to 5,000- to 6,000-, to 15,000-employee companies -- that's scary that we have to compete with companies like that.

JG: What's scary is, we'll answer [requests for proposals] and I'll ask the question of, "Who are we competing with?" And they'll list three names and I say, "Who are these guys?" They're in big enterprise customers. They're slowing up deals.

So who are these cloud companies?

JM: They're small companies that are purchased by private-equity companies that are looking to blow it out and add client base and then re-spend it out to the marketplace.

Very few of them are over $100 million [in revenue]. Most, under $50 million.

How many customers today versus five years ago are saying, "Get me out of the IT business"?

JM: I would say a minimum of 50 percent [of our clients] are having that conversation -- "Get me out of IT."

What's the makeup of Carousel's service business versus its product business?

JG: For the first time in 24 years, in 2015, we sold more services than products. We're 51 percent [services] to 49 percent product. This year should be 53 percent [services] and 47 percent [products]. We're trending in the right direction. If you went back three or four years, it was 70 [percent products] and 30 [percent services]. So we've made a lot of traction in just the last few years in that space. The message we're sending to our sales teams is cloud and managed, and managed in cloud. Managed services and cloud is really what we're leading with, and business outcomes.

What's the biggest service driver?

JM: If you look at our last-year performance, the biggest area of growth was around services. Period. Last year, we grew about 140 percent in the services piece of the business.

JG: Customers are saying, "Hey Carousel! This stuff is really complicated -- can you handle it for us? We don't want to be in that business anymore."

Why partner with Cisco, and what's it going to take to succeed over the next 24 years?

JG: We've been very successful in the Avaya world, the Juniper [Networks] world and the Extreme [Networks] world -- 5,000-plus customers -- but we understand that Cisco is in 70 percent of our customer base today.

If we want to be the strategic adviser and sell business outcomes to customers, Cisco has to be part of that conversation. If we going to be a neutral adviser -- what's the best product for your situation? -- we certainly need Cisco.

How often would you lose to Cisco in the sales field?

JM: I would say 15 [percent] to 20 percent of the opportunities, especially around net new logos. We're not losing our embedded base for the most part -- maybe 5 percent -- to Cisco, but the net new competition, going out and finding a net new logo, we'd be losing to Cisco 15 to 20 percent of the time.

What's your future with Cisco?

JM: Our future around Cisco is, we definitely want to be one of the cloud builders. I think that's a necessity for our business. You can build their platform in the data center and you have their new solutions around [Cisco] Spark. They're starting to enable their partners to get to the cloud piece. … They give a little more flexibility than a lot of the major telephony-type organizations out there.

Why acquire Cisco-focused solution provider Atrion?

JG: Yesterday, we were saying no to a lot of the Cisco stuff, and today we don't have to say no anymore.

What's unique about this acquisition, and I've known [Atrion CEO] Tim [Hebert] for a dozen years now, is that we've both have a lot of synergies between the two businesses and where we want to take it.

It made a lot of sense for us when we went through the "are we going to build this, or buy this" [thought process]. We're about speed and moving fast in the marketplace, and Tim fills that hole for us. We're super excited.

How many companies did you look at before picking Atrion?

JG: There's not a lot [of solution providers] out there of that size doing $120 million [in revenue]. They're right here [in Warwick, R.I.] and a strong presence in [Flemington, N.J.] -- in the Northeast is where we're the strongest. Our biggest customers were here. It just made a lot of sense. We knew them for a long time and there's trust there.

We have the ability to drive $20 million of Cisco in the next six months -- we wouldn't be able to install it without a company like Atrion. We couldn't build it quick enough. That goes back to the concept of speed. That's important for us.

How do the sales dynamics change now for Carousel with Cisco on board?

JG: The important message we're trying to get to our partners -- whether its Avaya, Extreme, Juniper or Cisco -- is, this isn't moving revenue from the left pocket to the right pocket. This is how do we go from [$500,000] to $1 billion, and everyone's piece of pie gets bigger. That's sometimes hard to explain. We're not cannibalizing our base bringing Cisco on.

How important is your Avaya business?

JG: Avaya is still super important to us. Avaya is still our fastball. We grew up there, the majority of our base is Avaya. We're about growing the Avaya business. This is about going from [$500,000] to $1 billion. It's our base. It's still 70 percent of what we do at the end of the day.

What's the vendor partner challenge now with Cisco?

JG: One of the challenges through this acquisition and Cisco onboarding is not losing focus on what our fastball is with our teams. We still need to continue to grow our Avaya business while we're growing our Cisco business, and that's going to be challenge. [Avaya] is our bread and butter.

We've grown for 24 consecutive years, and Avaya's had a very big piece of that growth.

How are you selling in today's marketplace?

JM: Our engineers and sales force have to get outside for the IT marketplace. They've got to get to the business units. The business units have more control over the business outcomes and the technology more than ever. The [chief information officer] used to control everything -- that's not the case anymore. For us to re-educate everybody, how we go talk to the business units is a big deal.

We're spending a lot of money on a thing called "changing the conversation" -- that's going across ... whole engineer and sales groups. The training is around, "How do you talk about business outcomes and business initiatives?" We started that training investment about 18 months ago.

Did you have to change the sales compensation? How does that change the dynamics?

JM: You've got to put the cheese where we're hot. We have a very diverse solutions portfolio. For us to get deeper and wider with our clients, it all has to be tied together. Our salespeople and engineers needs to be talking about the whole solution stack, or the compensation model does not exist for them. If you're doing a one-solution deal for a company and not talking about the whole stack, you're going to forfeit. It's not just a one-trick pony. The compensation is tied through all our portfolio set and now tied to Cisco as well.

What percentage of customers now are looking at Carousel as the trusted brand, rather than buying Cisco or Microsoft or Avaya? Has the dynamic changed?

JM: I think it has. I don't think we're not there yet.

We have an awareness campaign saying, "Hey, we are a cloud provider. We grew up in the business and have been around for a long time." Our customers sometimes think that "You're just a premise-based company" because we haven't gone out to every customer to tell the story, or they haven't read all the marketing. There's a lot of ways to continue to rebrand, and we're doing that today, because cloud and managed services is definitely our future going forward.

Do you need to be big in order to be successful today?

JM: Our philosophy has always been size and scale matters. You cannot be a small, regional technology provider today. The market is moving and evolving so quickly. Size and scale means investment -- investment internally on where you're going ... from a technology solution, your engineer solutions, skillsets, etc.

Can you start a Cisco practice without size and scale?

JM: You cannot bring on a Cisco without size and scale. It's very difficult for these $20 [million] to $30 million [channel] partners to make money -- that's where we have a leg up. You need to have $100 [million] to $200 million partner to be successful. There's no way we can grow [Cisco] organically -- it's impossible.

How important is scale when you're trying to sell OpEx-based services to customers rather than drive product volume?

JG: If a customer wants to talk about cloud, we're coming in with six, seven, eight options. We say, "This one is good at this. This one is cheap. This is expensive. This is global. This is domestic" -- whatever those options are. We like to say to our customers, "The answer is yes. What's the question?" [Meeting the desired] business outcome is really helping them drive revenues or helping to take cost out of their business.

What is the benefit of being a private-owned business in this market right now?

JG: Speed. Just pure speed. We can make a decision in 30 seconds. We can bring in a small group of people. Speed in this business is very important in how we do things.

JM: We can swing an investment and we know we might not get a return for 18 to 24 months, but we know in the long run, [in] 36 months, it makes sense. Having a private-equity company might not enjoy or want that type conversation [and] wait that long for the return.

You've had 24 years of growth. So what is Carousel's secret sauce?

JG: It's not rocket science. You listen to your customers. Hire the best talent you can. Have a culture where people can prosper every year and just do what you say you're going to do. There's a lot of companies that don't do that. It's really not that complicated.