The managed services provider (MSP) market continues to evolve. It is growing – a recent MarketandMarkets report estimated the market will grow from USD$145.33 billion in 2016 to USD$242.45 billion by 2021, at a Compound Annual Growth Rate (CAGR) of 10.8 per cent from 2016 to 2021. Market forces have led end customers to demand more sophisticated IT-related services. And finally, more and more companies are turning to MSPs for their IT. According to CompTIA, the number of companies that have adopted managed services grew nearly 50 per cent in 2015.
But as demand for managed services and competition increases, how can you ensure your MSP business reaps the benefits of this expanding market and stays ahead of the pack?
Having worked with MSPs my whole career, it’s become clear that growth for individual MSPs varies considerably. Saying that, the strategies high-growth MSPs have in place are remarkably similar.
Here are some of the tips I’ve found invaluable for MSPs looking to optimise growth and profits.
Process, process, process
While it may sound straightforward, process is essential. Unfortunately, again and again, I’ve seen MSPs overlook the importance of having set processes in place. MSP leaders are often born technologists, and have developed their own processes and methods that are as idiosyncratic as they are effective. This creates a problem when it comes to growing a business based on an MSP leader’s competencies. Inadequately defined and documented processes also make MSPs vulnerable to staff turnover, since a new hire can’t quickly replicate the behaviour of someone who has just left.
To deliver services at scale, MSPS must make that delivery consistently repeatable. The most effective MSPs that I’ve worked with have built repeatability into all aspects of the business, including technical operations and customer engagement. These MSPs have rigorously documented repeated business processes; built a work culture that rewards process discipline; implemented metrics to monitor process performance and consistency; and institutionalised process improvements by capturing, codifying and rewarding them. Having habitual processes and procedures in place is critical if you’re looking to grow your MSP business.
Build recurring revenue
The market is changing with more and more businesses turning to software-as-a-service (SaaS) and cloud services, which offer a low-capex approach to technology implementation. Successful MSPs have jumped on this trend and have transitioned to a recurring revenue model. But how can you make a subscription model work for your business?
First of all, re-think all IT as a service. Customers no longer want to be bogged down in the ownership of servers, networks, and even, end-user devices. Figure out ways you can deliver specific business capabilities on a pay-to-play basis. Second, a recurring revenue model requires eliminating the traditional notions of mark-up and itemised services, with pricing instead based on total value to the customer. To be profitable, you must focus on maximising value for your customers, while controlling costs. Undifferentiated services won’t cut it.
From my experience, top MSPs place a lot of emphasis on the concept of ‘building’. It’s important to have a strategy in place that enables you to first establish trust with new customers – and then incrementally expand account penetration over time. Smart MSPs are intentional about where they start with accounts and how they expand account penetration, leveraging account intelligence to drive incremental sales. Starting small tends to be better for building long-term relationships.
But perhaps the most important principle to bear in mind is that running a recurring revenue-based business hinges on customer satisfaction, since revenue and profits ultimately depend on retention and renewals. Thus, if you’re going to operate this business model, you must structure your services and staff incentives to support customer satisfaction.
Choose who you work with, carefully
When it comes to business, it pays to be picky. MSPs are in a much different position to VARs and system integrators. You are delivering a service and trying to optimise customer satisfaction over time. Customers have less visibility into how your business delivers value, so it’s important to consider the quality and efficiency of ongoing engagements. When selecting new partners, key criteria should include solid technology, ease out use, responsive support, service-aligned cost structures, reporting and metrics, and solution completeness. The MSP model makes your brand more important than any partner.
Being selective is also important when it comes to the clients you work with. It’s important to identify your ideal client, taking into consideration things like the level of effort it takes to support a customer’s environment and the level of technical expertise the client has internally. And when it comes to clients, don’t be afraid to cut ties if the relationship is not working out.
Train your brain
You won’t stay ahead of your competition by resting on your laurels. Peer groups, such as HTG, are a great option for furthering your education. Sessions are often led by industry veterans and members are encouraged to network and bounce ideas off each other. Another option could be to seek certification on specific technologies you use to deliver services. In addition, organisations such as CompTIA offer more general IT training opportunities.
Successful MSPs ‘work smart’. By adopting the above strategies, you too can make the most of MSP market growth, and out-perform the new competitors this expanding market continues to attract.
Article by James Bergl, Datto’s Regional Director Australia and New Zealand. He is responsible for establishing and defining Datto’s regional go-to-market strategy.