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Dragons' Den newbie firm Outsourcery: We are losing sales, we need to go DIRECT

Born-in-cloud biz trims £1m

Generals in the war-room at cloudy Brit biz Outsourcery are hiring direct sales reps in the public sector amid concerns that channel partners alone are not hitting the mark just yet.

The AIM-listed outfit has been forced to slash costs because the pipeline of deals brought to the table by third-party resellers are taking longer to convert into cold hard monthly recurring revenue (MRR).

The loss-making outfit, one of a new breed of technology-as-a-service firms, is run by Dragons' Den newbie Piers Linney, who has made a fanfare about its partner only sales strategy. Just weeks ago he was gushing about the explosion in channel recruitment, with reseller numbers swelling from 307 to 560 in the past year.

But a trading update reveals the situation is not quite as rosy:

"The large scale pipeline build of our strategic partner channel has taken long to ramp due to delays finalising the necessary organisational, system and their sales force readiness."

This delay will have a "short-term" hit on the growth of monthly recurring revenue (MRR) and "consequently on our reported revenue result for this financial year".

As a result, Outsourcery's broker Investec has cut revenue forecasts by around a third for calendar '14 and '15 to £8.5m and £15.3m respectively.

The brokers now expects losses before tax to widen by £300k to £5.8m for this year, while estimates for next have swung from a profit of £3.5m to a net loss of £1.4m. As such, Outsourcery is cutting costs by £1m from next financial year to match cooler business conditions.

Linney's lot are also in further discussions with larger channelites with "larger customer bases, significant sales forces and material revenue opportunities".

Sources tell us that only a fraction - fewer than 10 per cent of the 560 already on board – are yet to generate any meaningful deals for Outsourcery, and it doesn't want to leave success in the public sector to chance.

Outsourcery said the "Secure O-Cloud" it is building with Dell and Microsoft for the UK government is "on schedule, on budget and due for completion" next month.

But channel partners might not like the fact Outsourcery is "also hiring specialist and experienced public sector sales personnel to promote adoption of the platform and senior management are engaging directly with government".

"We have also successfully continued to win business directly in certain areas for O-Cloud deployment," it added.

Outsourcery has sufficient cash flow for the short term, it said, but over the medium term - in line with the monthly recurring revenue delay - the company warned it is reviewing options to improve working capital.

These include changing the existing debt facility, seeking external funds from strategic investors or raising additional equity finance. But with the share price down 70 per cent from IPO levels, the latter could be a tough sell.

Outsourcery refused to comment further than the update. ®

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