Legal Watch: Navigating the Sea of Managed Services

Feb. 13, 2018
Three ways to exploit RMR opportunities while protecting your company

If you are not providing managed services in the cloud, you are missing out on an opportunity. That said, it is difficult to navigate in new waters using dated charts.

The cloud is scalable, efficient and effective, and offers security providers numerous opportunities for recurring revenue, including managed services such as managed access control, home automation services, video storage and retrieval and others. Give them what they need, not what you have to sell – that means focusing on solutions, not products.

Think outside the box – it is no longer just security or fire protection. Subscribers want solutions, and if you can’t step up, someone else will.

These three recommendations exploit the extraordinary importance of RMR and make sure you protect your company as you navigate through the waters of managed services.

1. Approach security as a “solutions provider Approaching security as a solutions provider may be the single most important immediate strategy you can take in running your business.

Many providers focus on competitive bidding – the “bid and chase” approach – which has a limited future, because getting new clients is essentially premised on price and the belief that all security integrators are created equal. Instead, focus on service and expertise, not price to get more (and better) clients.

I would much rather provide value-added services to a client who wants responsive, quality service – not someone who has sticker shock with my hourly rate. It is a tough lesson to learn for any service provider selling their expertise, but if you want to succeed today, you must make the transition from being just one more security contractor to a first-class solutions provider that clients seek out for first-class security solutions.

2. The magic of RMR – Plenty of security contractors do not understand the importance of recurring monthly revenue until they go through the process of trying to sell their business. By then it is too late.

I have been there and it is terrible to watch an owner who has worked a lifetime to build an electronic security business, only to realize the business has very little value to an acquirer – simply because the company’s most precious business assets, its accounts, are tied up in relationships between the company’s principals and their customers and not reduced to predictable, assignable and enforceable service contracts.

Any security provider who wants to sell their business (and not have to stick around for years working as someone else’s employee), should start worshipping at the altar of RMR. While acquirers want to buy (and can get financing for) good recurring revenue service and monitoring contracts, they will not pay much for business relationships where the company’s owners are the so-called “special sauce.”

My advice to integrators is to move as much of the time-and-materials service work (for which acquirers won’t pay much, if anything) to periodic recurring service work under RMR-based contracts. Priced right, they can produce profit and long-term value. I am also a big proponent of lease RMR, which can be attractive to security end-users since they can avoid significant capital investment.

3. Protect your company – An effective contract for managed services should limit your company’s liability just like it would for intrusion or fire detection. Standard issue analog-era industry contract won’t protect you for cloud-based services.

Make sure your managed services contract includes, among other things: an enforceable limitation of liability clause that limits your liability for cloud-related issues; provisions requiring the subscriber to indemnify your company in the event of a loss (even if your company’s negligence caused the loss); and an effective waiver of the rights of the subscriber’s insurer to recover losses (known as a waiver of subrogation).

Make sure you also have the right kinds of insurance, too, including coverage in the event of an internet-based loss.

Eric Pritchard is a Philadelphia lawyer who works to make the world safer for security and life safety providers. Contact him at [email protected]. This column does not constitute legal advice; contact an attorney with questions.