ANS bosses on burning the boats, decimating hardware sales and using Spotify's tribes model

CEO Paul Shannon and CTO Andy Barrow talk through the firm's abrupt shift from hardware reseller to cloud services provider at CRN's MSP North event

ANS bosses Paul Shannon and Andy Barrow have opened up on their "burning the boats" strategy, which saw the firm shut down its hardware reselling business almost overnight.

Speaking to delegates at CRN's MSP North event in Manchester, the pair talked through the bold steps they took to reposition ANS as a cloud-focused business, charting the challenges they faced along the way.

The strategy was largely based around a quote from life and business coach Tony Robbins, which the ANS exec team had heard at one of his events.

"He had this phrase that was if you want to take the island you need to burn the boats," CTO Barrow (pictured, right) explained.

"Basically he was saying that if you want to change your business you need to make sure there is no way back.

"It comes from a general in 1519 (Hernán Cortés) who went to take over an island and when the troops got off the boats, he burned them. It sends a message saying you cannot fail. You need to be in a position where you have to commit and take away the safety net."

ANS followed this strategy, essentially abandoning a hardware business that was still thriving through strong relationships with the likes of Cisco and NetApp.

However this went beyond purely switching vendors partners, with the ANS' structure having to be reengineered from top to bottom.

The rationale was that a handful of resellers were starting to dominate the traditional space, according to CEO Shannon (pictured, left).

"We could see a cliff edge primarily because we knew there were some really specialised commodity players that were becoming experts," he said.

"Softcat, CDW - those guys were getting this nailed and they were commoditising something that we had been making a lot of money from.

"We could see that if we didn't change and adapt, we would end up falling by the wayside."

While a number of firms have been, or are going through, this transition, ANS' has been far more dramatic than many.

The ANS bosses said that gross profit from hardware plummeted from £6m at the end of the 2017 financial year to just £1m the following year.

"We just ripped out £5m worth (gross profit) of kit, which was fairly easy P&L because it just goes straight on," Shannon said.

"We liked that a lot because we knew we could bolster a month or a quarter of P&L just by shipping some kit, but it got ripped out and you can't replace it, because it takes a long time for managed services to feed to the P&L."

Managing cash in the business was also an issue, with Shannon explaining that forecasting proved to be to a stumbling block. He pointed out that when you don't sell hardware you don't get any rebates from vendors, and they are also less likely to give you marketing funds.

He also said that working capital is impacted quickly without revenue coming in from hardware, with banks and vendors still wanting their payments within the same deadlines.

In fact, Shannon said that ANS probably wouldn't have been able to afford the transition from hardware sales if it hadn't already spent three or four years building up a solid base of recurring revenue.

People problems

While the executive team at ANS had thrown themselves behind the radical transition, some of the firm's employees were less than enthused.

A number of staff members that were still seeing success selling hardware were reluctant to adapt.

"We really, really, struggled and I would say that we spent the first three to six months trying to win round the people that we've got, asking how we'll get on in this new world," Barrow said.

"We didn't really get anywhere with some of the people, unfortunately. Some of the people spent 10 years [with us], with excellent technical knowledge and didn't want to evolve or change with the times.

"So this was a huge issue that we had throughout the whole business, certainly in the technical side, but also in sales. We had people with us for 10 or 15 years that had sold hardware datacentre solutions and had done really well, and now we were saying we were going to the market with cloud-based solutions and new partners."

But what made the change in focus take off so quickly was the incentives ANS offered to the sales people that had agreed to the new way of thinking. A bi-product of this was an extreme decline in hardware revenue.

"That is what basically trashed the kit pipe that quick," he said.

"We didn't actually anticipate that the kit pipe would decimate as quick as it did. It was about six months."

Broadly speaking, Barrow said that while ANS was a strong business, it had not been built to change.

This meant that internal structures needed to be overhauled, with a traditional business hierarchy thrown out the window and replaced with one based on innovative, born-in-the-cloud companies like Spotify and Netflix.

The atmosphere around the office has also changed, Barrow explained.

"Management at the top were making the majority of the decisions and we had teams of 30 or 40 people," he said. "It was difficult to make agile.

"Now you pretty much won't see a suit in the office and it's a far less formal environment.

"Some of the processes that we use are similar to Spotify's tribes or squads. Teams are no bigger than seven, they're self-organising, they have their own responsibility for customer outcomes, they don't really have to escalate to management and they have the power to make the right decisions."

The upside of the painful process is that ANS is now primed to adapt again in the future, if and when it needs to.

"It was basically to get ourselves to a position where we can transition the business into the new world, heavily into the new world, but actually be in a position whereby when the transition happens again, we're not going to go through this whole 18 month nightmare in the business with everyone that feels a level of uncertainty," Barrow said.