The Hidden Cost of Vendor Lock-In

When most business owners think of selling their business, they imagine all their hard work, sound investments, and sacrifices will add up to a strong valuation. But a few small mistakes can dramatically reduce the value of your Managed Services practice to potential buyers.

At the top of that list is vendor lock-in.

While your reasons for committing to a vendor might be sound—loyalty discounts, business continuity, and efficiency as your staff becomes more familiar with the platform—there’s a downside to committing to a series of vendors for 2 to 3 years.

Here are 5 ways vendor lock-in for cloud services can hurt your business:

  1. Portability

Every cloud solution is unique. Some make it easy to migrate data to another platform. Others don’t. Make sure you understand how this process works before signing a contract. Or better still, choose a vendor that doesn’t require a long-term contract.

Too often, MSPs find out the hard way that the short-term cost savings of signing a long-term cloud contract are far exceeded by the cost of extrapolating data once the vendor relationship ends.

  1. Interoperability

Ideally, an MSP’s business platforms should work together as one well-oiled machine. While your solutions set might start out that way, a few bad updates could turn those winning solutions into laggards that hold your business back.

By avoiding vendor lock-in, you can replace solutions that no longer make sense for your business, rather than counting down the days until your multi-year contract ends.

  1. Flexibility

Maybe the cloud solutions you deliver to clients work well for your business today. However, a better, higher-margin vendor could enter the market at any time. When you sign a long-term vendor contract, you’re forgoing your ability to refresh your vendor set as desired.

  1. Exit Fees

Right now, how much would it cost you end your long-term cloud vendor contracts? Consider exist costs when signing vendor contracts. Vendors that are making the right investments in their product won’t have to resort to trapping you in a long-term contract.

  1. Decreased Company Valuation

This might be the most painful pitfall of all. Having too much vendor lock-in cloud cause prospective buyers to either devalue or walk away from buying your business, and for good reason, too.

Here’s why – let’s say you sell your MSP practice, then an end-user customer of that practices goes out of business. For compliance and auditing purposes, the new owner of your practice will have to go back on-site to the end-client location to compile relevant data for auditors. That’s a huge and costly hassle.

The Alternative

Choose cloud vendors that are confident enough in the ongoing value of their product that they don’t feel the need to lock you into long-term contracts. Learn more about the benefits of ProfitBricks today.