Looking into third-party extended warranties for your tech business? This is the episode for you! Harry Brelsford is the founder of SMB Nation and currently the Managing Director of AOM world. In this episode, Harry joins Ben Baker to home in on third-party extended warranties and how the Alternative to OEM Maintenance (AOM) might be what you need. He lists out the benefits of using AOM and explains how they help IT consultants and MSPs. They also look at upcoming technology opportunities that you should be looking into in the coming years. Keep an ear out for this information-packed discussion.
[00:01:00] I went out looking for somebody different. We've been having a technology conversation back and forth on LinkedIn. I figured to get somebody out there who has much of a technology bent as I do, has been in the industry probably longer than I have and has far more war stories. This is Harry Brelsford. He is the Managing Director of AOM World. We're going to get into and take a look at alternatives to third-party extended warranties. It's not as boring as it sounds. It's something you're going to want to keep an ear open for. Let's get into it. Harry, welcome to the show.
[00:01:41] Thank you. I appreciate you having me on.
[00:01:45] We had a great conversation off-air. Most people don't understand. They get there and go, “They're pushing these extended warranties on me again. I go to buy a new car and everybody wants an extended warranty. I go to Costco and people want to give me an extended warranty.” You sit there and go, “Is it worth it?” Sometimes it is and sometimes it's not.
I've bought extended warranties and it has saved me thousands and thousands of dollars. I've bought extended warranties and it's cost me a couple of hundred dollars and I've never used it. Before we get into everything, we're going to talk about extended warranties. Let's talk about you, where you came from and what brought you to this conversation.
[00:02:44] I grew up in Alaska. My dad was in oil. We moved when Prudhoe Bay was discovered. The reason that's important is I worked in the summers on the Trans-Alaska Pipeline as a security guard in college. I came back with a pocket full of money and bought one of the early Apple II Plus computers at a 300-baud modem and a 40-character screen. I got in early. Ben, it was love at first sight. I realized then and there, with the ADHD I had as a kid and I still hide behind, that it worked. There was finally something I could do and do well. The rest is history.
I went through early Macintosh, became a redhead with NetWare. That was fun until it wasn't and then kicked over to NT. I have 32 years as a Microsoft vendor in a variety of capacities, primarily an OEM in the server teams. That went away up to the cloud, as we all know. I do startups, including AOM World. I did a startup in predictive analytics. I'm loving life. We talked how fair. Everybody's got 4 or 5 side hustles and I love it. I got 4 or 5 things going on.
[00:03:56] That's the fun about the market, especially with the startup community. There are so many great ideas out there. Amazing things have come out of COVID. Being part of that is energizing. I don't care who you are. I don't care if you're 25 years old, 55 years old or older. Being around all this new technology, the what-ifs and the conversations about, “Can we? Maybe we can. Let's figure out how.” Those conversations are energizing because it's going to take us in ways and places that we never thought about. It's going to allow us to do things that we never thought we could accomplish. Being in that marketplace with the young idea makers is an energizing and fantastic place to be.
[00:04:52] Let me add value to that. I have a business partner who is semi-annoying. He likes to be a law professor in the Socratic method. He always challenges my team and me with, “So what?” My younger kids would say, “No one cares, dad.” I have a comeback for that and it's like, “Why not?” Especially with the reset, I personally have gone through career-wise in the pandemic. I've rethought a couple of things and it's like, “Why not give it a shot?” I'm not saying you should be reckless but why not?
[00:05:27] We're at a point where you can make those why not decisions. If they're calculated, standout and strategic, there's not nearly the amount of downside that there was many years ago. The downside is not there, especially with AI, predictive analytics and all the information that's out there, your ability to talk to customers one-to-one or one-to-many and be able to get real-time data understanding from clients.
You can go out there and test the marketplace before you even build a prototype. It's an exciting place to be where you can sit there and say, “Why not? Let's test this.” Try it and say, “There is a viable model or there's not a viable model. Let's make the decision based on that.” It's one of those things that has allowed the younger generation to pick up, make risks and decisions and create things that we probably never could have years ago when I was that age.We’re at one of those points in time and history where the innovation coming out of the pandemic and the reset is going to be far greater than we even know. Click To Tweet
[00:06:35] I could go on and on. How about one more quick little story about how we're entering a new epic era? It would be as simple as this. In the early ‘70s, the computer industry was ground to a halt because they were still using vacuum tubes. They hadn't perfected the integrated circuit. There's that whole argument about Texas Instruments or National Semiconductor that did it. That doesn't matter.
There are writings about the tyranny of numbers and it ground the industry to a halt and then the integrated circuit came out. The innovation that came out of that, you see it in IoT. The point is we're at one of those points in time and history where the innovation coming out of the pandemic and the reset is going to be far greater than we even know.
[00:07:24] You talked about the original 300-baud modem. I had a 14.4. If you go back and try to give a kid a 14.4 or 300-baud modem and tell them to try to do the things that they're trying to do, they couldn't do it. It's impossible. You couldn't do it on a 286 or on one megabyte of RAM. The fact that the technology is at a point where it's not inhibiting. The processing power and cloud computing are there.
The ability to be able to say, “I need access to a supercomputer.” That's available where it never was available years ago. It's an exciting place to be because you can run those computational models, make those AI decisions and expand the limits of what's doable and what's not doable in a fraction of a second where it could have taken days, weeks, months or years when you and I were first starting out.
[00:08:20] It's a fraction of the cost. In the world of data visualization, I prefer Power BI over Tableau. Tableau is a little expensive. Power BI is essentially free at a certain level. To your point, you can do these iterations. You can pivot this data around and see things you otherwise wouldn't see. It's really simple.
[00:08:42] Let's parlay that to extended warranties. You saw a problem. This is like most young startups. You sit there and say, “There's a problem in the market.” We need to sit there and say, “First of all, can we fix it? How do we fix it?” I'm going to let you take the helm from here. Sit there and say the problem you saw in the market. Then let's get into how you took that problem and made that a fixable thing in a way that makes sense for business.
[00:09:16] There are two answers and I quickly realized it's not entirely your audience but there's the IT consultant or better known as the channel partner, the computer guy or gal, we used to call them. They're always looking for additional solutions and services to sell to their customers and take care of their customers. They do come from the heart. The extended warranty area was overlooked a little bit like training. A lot of IT consultants would put training over here. That can be 10% of your annual revenue if you offer training.
The extended warranty area had the same behavior and that's what got the company I service out of Austin. What got us into the business was looking at how some of the OEMs, Original Equipment Manufacturers, were selling the extended warranties and maybe not creating an opportunity for the IT consultants. That's number one. That was our initial.
[00:10:10] You're talking about the Dells, the IBMs, the Compaqs, the HPs and those types of people.
[00:10:15] They all do but how does that help Harry the computer guy? I'm not sure it does. I'd like to get a couple of those pennies flying by. That was where we started with the business model of AOM World but then something happened, the pandemic hit. There are winners and losers coming out of the pandemic. The shorted example is every Colorado ski village is a Zoom town. Unexpectedly, there are Zoom towns with people like you and me working remotely.
The extended warranty area was a winner and here's why. If you take a cruise ship, amusement park and aerospace companies, they got hit pretty hard. Cruise ships are simple examples. They stopped sailing, so they went to revenue zero. At the same time, with the limited cash they had, they had to do a spin shift over to laptops.
[00:11:12] They're buying hundreds, if not tens of thousands of laptops when they're not making any money.
[00:11:19] I saw it firsthand. With the laptop, you need the headset and the monitor. It's not just a laptop. It's a spin. They're forced to reckon with some of their private cloud assets, data centers and some equipment that's coming towards its end of life. One way you can avoid a large capital outlay and that's my base case is to refresh a data center. Let's say that's $30 million to do a refresh on the Columbia River in the state of Washington.
For a fraction of that, you could buy a third-party maintenance contract, an extended warranty and keep that older equipment running. It's not going to run forever. I'm not suggesting it can keep extending. During the pandemic recession, for those kinds of companies, it offered them a chance to preserve cash, very nice and simple. In the technology industry, you have to stay up. Uptime is what they call it. You can't go down. We caught that wave. It has been one heck of a rodeo ride, let me tell you.
[00:12:37] You've got all these companies that not only have their diversified workforce all over the place on these laptops. They had to outlay whether they leased or bought the equipment. There's a financial outlay for doing that. That takes extensive capital. Therefore, their critical systems, server farms, all the backup and high-end technology stuff are sitting there going, “We don't have money for both because we don't have capital coming in.”
Pick one. It's a matter of looking at it and going, “How do we take this technology that's 18, 24 or 36 months old, be able to sit there and make sure that it's usable?” Normally, you would have sat there and said, “It's on a 36 or 48-month lease. We'll swap it out. We'll call up our lease provider, whoever it is and say, ‘Swap it out.’”
How does the extended warranty make that better? Is it a disruption of things? Is it the fact that you can't get new equipment because of chip technology? Is it the fact that it's greener? What is the biggest argument for keeping that technology that may be a little bit outdated and outmoded still running versus flipping a lease over, having that ongoing lease that you're already paying for anyway and having the new equipment? Why would you do one over the other?
[00:14:15] Let me make a distinction. Our research and customer base show that we're typically dealing with large and mid-sized companies that own the hardware. They need capital investment. You raised a good point with the leasing. Here are a couple of thoughts. An extended warranty is going to make sense for two reasons. I understand it's a phone call or an email to swap out the equipment, renew the lease or whatever you do.
We have two things going on. One is the supply chain shortage because of the chip manufacturing and the delays in procuring the IT assets. The other is the labor or IT skill shortage. I'm an old-timey, heavy metal server-side guy, big iron. Kids are far more interested in cybersecurity and there's an incredible amount of jobs open in that field. Being a cowboy on a server farm, I don't know if young people are attracted to that.
[00:15:15] It's harder to sell it now than it was many years ago.
[00:15:19] That's where I see the CFOs and CEOs reading would be on the one use case. If you own it, we can talk about cost savings to traditional OEM maintenance and extended warranties. To reiterate, supply chain and all the upsetness of the logistics to doing a swap-out is not just a weekend then. That's a big project and the skill shortage.It’s not about who you know but who you’re friends with. Click To Tweet
[00:16:27] The skill shortage, especially in what we're calling the great resignation, 50% of employees they say over the months are going to flip jobs, if not more. That's huge for IT departments, brain trust and critical skills within the company. In having a third-party company, you're not relying on your own technology. Their job is to keep server farms and high-end technology firms running. It's their responsibility to make sure they have enough horses, if not your responsibility to have those people in-house. That way, you can concentrate on what you do.
How do you turn around and sell this? You're dealing with half billion, billion, multibillion-dollar corporations who are doing this. We're not talking about the Ben Bakers of the world, the million-dollar corporations that have two computers, sitting in an office somewhere going like, “If my computer dies, big deal. I go down to the best buyer. I buy a new one. In the next day, I'm up and running.”
How do you go about having conversations with these companies with the CEOs and CFOs to get them, first of all, to know and trust you? You aren't a Cisco, HP, or Dell and get them, first of all, to trust that you are going to be there for them. Second of all, the solution that you're providing is a solution that's going to take care of them, not only now but also in the long run.
[00:18:17] There are a couple of things. The sale of extended warranties in the technology space is itself an extended sales cycle. It does take time. Here's the good news. The firm I'm involved with, we've been doing it for quite a while. We have industry relationships but, in any field, you have to earn the trust of the client.
Our use case is typically where they own the equipment, the primary use cases and the cost savings. For the alternative to OEM maintenance, our studies show internally that it can be up to 80% cheaper than buying the OEM maintenance. I'll give you an example. Let's use Cisco. Cisco will sell you an extended warranty. You're in compliance with the Department of Defense or maybe the healthcare sector. You can't go down on healthcare, hopefully not.
When you work with a third party, it's like anything. Third-party parts for your automobile are far cheaper than going to the car dealer by analogy. We're the same. We can save you up to 80%. We typically went over the CFO pretty quickly and the C-Suite in general. Our challenge historically has been maybe the CIO and the people on the technology side because historically, they measured their power by doing refreshes and projects. They are singing a different tune in the pandemic recession. They got on board pretty quickly that a refresh is simply not an option.
[00:20:05] With COVID, they can't bring the people in-house to do the refresh. They also are dealing with budgets that are probably 30% or 50% of what they were years ago. There's that issue. Let's come back to the word that you said, which is an important word and that's compliance. Compliance not only for your own internal needs but also the compliance to be able to make sure that you are there to be able to take care of your clients. That's the unwritten promise that matters.
Our clients come to us because they know we're going to take care of them. We're going to be there when they need us. We're not going to make any excuses that our systems aren't going to work and they're going to work every time they need to work. When you're dealing with these issues, sometimes you’re not only dealing with your clients but their clients as well in order to build levels of assurance. How do you go about building those alliances and those partnerships to be able to make sure that one system is talking to the other system and everybody is onboard at the same time?
[00:21:20] There are a couple of things. I'll take the last part first. How we deal with it inside the firm I'm in is we're hiring industry experts. There's no ageism here and that's a good thing. It's people who've been in the large distributors, the Ingrams, the Tech Datas and the Synnexs of the world. They've been in the OEMs themselves and they are heavily experienced. Here's the deal. They bring one heck of a LinkedIn connection list with them. It's a little bit like the 32 years in Seattle how I watched people in commercial chat sales at Boeing. It's all about the relationships you built up over the decades and your phone call will get answered. It's not who you know but it's who you're friends with.
[00:22:09] You don't sell a jet. You facilitate the sale of a jet.
[00:22:15] There's an expertise and experience issue that goes a long way towards building that trust. Bringing together, you're suggesting the coalition because there are a lot of moving parts at a large aerospace company when it comes to their IT. They have commercial, defense and space, so it's not as easy as it looks.
[00:22:37] With the complexity, are you relying on third-party partners who are experts within certain areas? Does the company that you're with have the expertise in-house or are they relying on technology partners to be able to build that know, like and trust to sell your programs within these large companies and systems?
[00:23:03] We're relying on technology partners, so I do have a good answer for that. We're a relatively small organization with under 50 employees serving a large number of corporations in the area of technology lifecycle management. We rely on partners around North America and hopefully, globally through different trade groups that we're in. I'm not just talking chamber of commerce. I'm talking professional organization.
There are a couple of reasons to do that. Number one is the geographic dispersion of the partners who could get to a chicken plant in Arkansas very quickly to take care of the onsite problem. Number two would be what I'd call the Amazon Logistics Effect. I'm sure every reader knows but Amazon is very good about having these warehouses distributed all around the US.
I had a knock on the door with my goods from Amazon. That tells me they have a warehouse in Austin, Texas that stock, in this case, the particular good that I wanted. It's all expertise and logistics. That's the only way we would do it. There are other third-party maintenance providers that do have enormous staffs but that's tough skating on the profit and loss statement, let me tell you.
[00:24:33] What you want to do is you want to manage the paper and the backend logistics and have expertise across North America or the world that can be feet on the street and handle the customer's needs on a 3-hour, 1-hour or 24-hour insurance contract to sit there and say, “Within 3 hours, or 5 hours, we will have somebody at your plant.” You do not have to put somebody on a plane from Texas out to California or New York to be able to handle it. How do you go about building those alliances to be able to sit there and say, “We've got the right people to do the right projects at the right place at the right time?”
[00:25:17] It's no secret. There are great people over at SIA. It's a large trade association of technicians, for the purposes of this conversation. They're not so much into Washington, DC, politics and policy. This is much more focused on execution and logistics. We work with those partners and there are thousands of those partners. The short answer is to get involved in the right industry association and leverage its membership.
Another one we work with is IAITAM, the International Association of IT Asset Managers. There are 95,000 members in IAITAM. These are real numbers. They're mainly employees at Boeing. They're not the service provider. Everything helps everything. You build a network. We're saying the hip and cool term ecosystem. We used to say my network. We lost that phrase. It's called my ecosystem and they intersect.
[00:26:31] Are you having direct relationships with these large Boeing-sized companies to be able to provide the third party or are you partners? They have the relationship, buy the paper from you, sell the paper to their clients and you manage it. It's both types of relationships. Where would the differentiation be? Why would a certain company deal with you directly versus one of your distributors? Is there a tipping point? Is there a reason why they would deal with you directly as a corporate versus one of your distribution partners? Is the cost exactly the same? It's just facilitation.
[00:27:21] There are a couple of ways to look at that. Some of our relationships are grandfathered in. That's how we started and we'll continue with some quite large accounts. Moving forward with AOM, the whole premise was to empower and enable IT consultants. A term that is coming into common use is Managed Services Provider. You're seeing that on TV ads and football games. MSPs are computer repair people, IT consultants and so on.
To your point, we're a world of acronyms. There are far too many acronyms. Moving forward, we want to empower the MSPs because it does two things. We get a lift by going through. That would be what you call a channel. We get left because we can't hope to know all the clients and have the relationships they have with their particular portfolio of clients. We're willing to make sure everybody makes money and it doesn't impact the customer with higher costs. It's the classic win-win, and I know that's the 1990s calling.Get involved in the right industry association and leverage its membership. Click To Tweet
[00:28:33] I'm a big believer of the win-win if we can make things, so everybody makes a little bit of money. The customer is being charged a fair amount and they're being taken care of. I don't care what the industry is. Those are the relationships that are long-term and the best relationships. I've got two last questions for you. The first one comes down to where do you see the industry going? What's next? What are the things that large companies and your partners should be thinking about as technology and the world change? What are the things that we should be looking at for the next 3 to 5 years and be keeping our eye upon?
[00:29:17] I'll take this outside of the extended warranty conversation. It's a much bigger question than that. There are a couple of things. One is new and emerging industries are creating quite a conversation in North America. With all due respect but the serious and business side of the cannabis vertical with more states coming online is creating technology opportunities. I'm not joking. It's creating these opportunities because it's like the pharmaceutical industry in terms of regulations, tracking every darn little pill, barcoding and all that. That is going to create upside and it's a slow roll, which some people think, “Maybe I miss that opportunity.” I'm like, “That opportunity is just starting.”
The first thing is new and exciting verticals. There are other ones like space travel. That's one where we're seeing a lot of chatter and then the other would be, the obvious, cybersecurity. I share that with you. My youngest son graduated college in June 2021 and had a job waiting for him at a Silicon Valley cybersecurity company. He's finished his first fiscal quarter and couldn't be happier.
Here's the point. When I double-clicked into this company, it's a 10,000-person company, well-capitalized and they have 900 job openings. In that 10%, they are desperate. If you can fog a mirror, you'll probably get an interview. Clearly, it's cybersecurity. That's an overused example but when you go to your favorite cybersecurity vendor, go to jobs and see how many jobs they have relative to what Crunchbase reports the number of employees, it can be that 5% to 10% of their workforce are openings.
[00:31:10] If you take a look at the kids that are in high school, going into university, graduating from university or any of the tech programs, the kids that can't code are in serious trouble whether you become a coder or not. Whether you're an analyst, on the strategy side or on the sales side, you need to understand the basics of coding in order to be able to live in that environment, to at least be able to talk intelligently about it and work within that ecosystem. I truly believe that the STEM world is growing in leaps and bounds. Thank you for being such an amazing guest. We'll make sure that we get the link to your website.
[00:31:58] It's AOM.world. It's a vanity URL like a license plate.
[00:32:12] Here's the question I ask every single person. When you leave a meeting, get in your car and drive away, what's the one thing you want people to think about you or your company when you're not in the room?
[00:32:29] What I want people to think about our company is being good actors and fair. A big push internally is to highlight the work we're doing in the diversity, equity and inclusion area. We're veteran-owned and minority-owned. I'm speaking for myself. I don't own the company. I want to walk away, get in my car and people think we're good guys. What's the differentiator in a sale? There are alternatives to OEM maintenance. I want to earn their trust. Let's all have a little bit of fun along the way. We want to be the good guys.
[00:33:16] Business is done by people you trust. If you don't trust people, you may do business with them once but you'll never do business with them again. Harry, thanks for an amazing conversation, for enlightening information into the world of OEM maintenance and extended warranties and for being you.
[00:33:36] I appreciate it. That's all I know who to be.
Entrepreneur Harry Brelsford is the founder of SMB Nation (www.smbnation.com) from Austin, Texas. He is a long-time SMB channel partner who has served customers and mentored other partners (SMB Nation has over 45,000 members who are Managed Services Providers (MSPs) and SMB technology consultants). He oversees the popular SMB Nation workflow including marketing analytics, content and events (webinars, workshops and multi-day conferences).
He holds an MBA in Project Management from the University of Denver (and numerous certifications such as MCSE, MCT, CNE, et al) and is the author of 23 books on technology and business topics. His 20 years of SMB technology experience were supplemented by teaching 12+ years at night as an adjunct professor at Seattle Pacific University and other higher-learning institutions. He served as the Dean in the Graduate School of Technology at Aspen University (where he was awarded a PhD in Letters).
Harry is an in-demand speaker at industry events. Harry's recent books include the “How to Be an MSP” and “The Pocket MBA – Instant Entrepreneur” and he has published over 400-articles in business magazines (Washington CEO, Colorado Business, Alaska Business Monthly) and technology magazines (ChannelPro, Microsoft Certified Professional magazine, etc.). An active entrepreneur, Harry is the force behind the Pocket MBA, Telephonation, Cloud Nation and XPmigrations.com. His latest startup is 420MSP.
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