As we enter 2017, I think it is fair to say that none of us really know what to expect from the months ahead, with global changes afoot which will have consequences for us all. So how can we ensure that we are doing everything we can as IT businesses to stay successful and crucially profitable? From my conversations and meetings with MSPs around the region over the last few months, I’ve been able to identify some key habits shared by the most successful companies which I’d now like to share with you:
EFFECTIVE MSP HABIT #1: Define and document repeatable processes
Technical competency is necessary for MSP success, but it’s not sufficient. To profitably deliver economically valuable technical services at scale, MSPs must also make that delivery consistently repeatable. This repeatability can present a challenge to MSP leaders, who are often hands-on technical practitioners themselves—and who have thus developed their own processes and methods that are as idiosyncratic as they are effective.
These leaders thus tend to expect their staff to apply similar competency and creativity to their jobs, in the hope that this competency and creativity will make the business a success. Unfortunately, if everybody does everything differently, some of them will do it wrong. Some of them will also take more time to do it, which invalidates pricing. And some of them will do it right—and quickly—but will do it in a way that confuses the customer. 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 just left.
MSP leaders therefore need to build repeatability into all aspects of the business, including both technical operations and customer engagement. Rigorously document all repeated business processes with flowcharts and build a culture that promotes and rewards process discipline and performance.
EFFECTIVE MSP HABIT #2: Be missional
It takes a lot of work to be a successful MSP. You have to put together great technology solutions, win over customers who can easily spend their money elsewhere, diligently deliver the responsive service it takes to keep those customers once you get them, continuously coach a growing team of diverse personalities, and rigorously control costs. All that daily “blocking and tackling” can get to you, even if you’re making money.
So you may need more than just a profit motive to lead your company to MSP excellence. You also need a mission. Some define it as bringing technology excellence to their local market. Others define their mission as empowering a particular vertical to reap the benefits of a particular set of technologies. However, they define it, high-performance MSPs almost universally connect their business model to a mission or vision. By doing so, they reap a variety of benefits including brand elevation, a more energized company culture and a clearer direction.
EFFECTIVE MSP HABIT #3: Choose and maintain a technical offering focus
Many MSP leaders are pretty sure just about any business could benefit from their skills and knowledge. And they may be right. Servers, after all, are servers. And it’s a rare SaaS implementation that poses any especially difficult technical challenge to a skilled MSP. But trying to be all things to all people is a recipe for disaster.
An MSP’s focus should be on making their offerings the best of the best. Once MSPs have become masters of their technology they can apply it to many verticals. Truly understanding the technology they are selling is key. Being a master of products will help to answer those tough questions customers might have about functionality, support, and IT management as a whole. That’s why successful MSPs tend to zero in on one or more very specific technical niches.
EFFECTIVE MSP HABIT #4: Build recurring revenue
A recurring-revenue MSP model can be tough for some, since monthly services income can feel more like a trickle than a fire hose—and it can create pretty painful cash-flow challenges. But the market is changing. SaaS and other cloud services offer customers a low-capex approach to technology implementation. In fact, the sharing economy more generally is enabling companies to reduce capital investments in everything from office space to delivery vehicles. So it’s important for MSPs to capitalize on this trend, rather than fighting it. Some tips for making the recurring-revenue model work:
● Re-think all IT as a service. Customers don’t want to get bogged down in the ownership of servers, networks, disk arrays, databases, software, websites, authentication systems, or even end-user devices. Instead, they want to gain specific business capabilities that incidentally require these underlying components. So figure out ways you can provide customers with capabilities on a pay-to-play basis. Data, application logic, and actionable analytics are ultimately what make the world go around—not ownership of CPUs or flash drives.
● Price for fully bundled value. Previous business models split pricing into two silos: marked-up capital goods (typically low-margin) and hourly itemized services (typically high-margin). A recurring revenue model requires eliminating the traditional notions of both markup and itemized services. Instead, equipment and labour costs are opaque to the customer—while pricing is based on total value to the customer, rather than a markup on total cost. Profitability thus depends on maximising value to the customer while controlling costs. Undifferentiated services simply won’t support a profitable price point.
● Re-structure your own cash flow. Because MSPs tend not to receive large infusions of capital, they have to be increasingly creative about their own cash flow. This is why successful MSPs often turn to cloud services themselves to support their business. It’s also why they often take advantage of the sharing economy for capabilities that they once might have built in-house—including financials, marketing, and QA.
EFFECTIVE MSP HABIT #5: Cultivate high-percentage entry points
MSP success is contingent upon building stable recurring revenue over time. Top MSPs place a lot of emphasis on the concept of “building.” That’s because few customers are inclined to jump into a large, all-inclusive contract with a new IT partner right away. MSPs therefore need a strategy that enables them to first establish trust—and then incrementally expand account penetration over time.
Perhaps the most important principle to bear in mind is that a recurring-revenue model forces an MSP to focus more rigorously on customer satisfaction, since revenue and profits ultimately depend on retention and renewals. Some MSPs take what they consider to be an opportunistic approach to account entry by simply trying to land whatever initial engagement a new customer will accept. This approach, however, can turn out to be more random than opportunistic, since not all of these engagements lend themselves to incremental expansion.
A more intentional—and more effective—strategy for account entry differs from this kind of opportunistic/random approach in two ways:
● It intentionally limits scope and/or scale. Successful MSPs have discovered that it often doesn’t pay to grab too much of a customer’s business on the first pass. For one thing, an over-sized initial engagement can lead to big, early mistakes that undermine trust. A more limited scope enables both the MSP and the customer to work out any kinks in the engagement—whether those kinks involve process, pricing, or politics—without a lot of downside risk. For another, MSPs gain credibility with customers by not appearing too greedy at the outset.
● It intentionally maps out phased account penetration. Smart MSPs are not only intentional about where they start with accounts. They are also intentional about how they expand account penetration. For example, a data protection/business continuity engagement may start with just a few core applications plus email and then expand over time to include unstructured data and personal workspaces. Moreover, many MSPs explicitly map out this kind of phased expansion in advance with the customer. This planned expansion helps drive sales growth while adding value by guiding customers’ IT environments to a target/desired state in a disciplined, phased manner. In other words, starting small tends to be better for the long-term relationship. And an expansion plan for existing accounts can contribute at least as much to business growth as prospecting for new ones.
EFFECTIVE MSP HABIT #6: Build a better talent pipeline
Every service business is a people business. So when MSPs stop growing, it is more often than not because they don’t have enough of the right people to deliver more services to more customers. Most MSP leaders recognize this intuitively. But they nonetheless struggle to develop the kind of talent pipeline necessary to keep expanding their business. Many go as far as to blame the labour market, rather than any shortcomings in their own talent management strategy.
Successful MSPs, in stark contrast, take responsibility for building the kind of team it takes to keep getting better and bigger. Recruiting for potential Immediate pressures often drive MSP leaders to make hiring decisions based almost exclusively on present technical skills. This is a mistake. Skills can be learned. So while new hires should be able to demonstrate proficiency in their current areas of interest, their long-term value to the business has more to do with their ability to grow professionally over time. New hires should therefore also be selected based on their ability to learn new skills as required and— perhaps even more importantly—understand the MSP business model and the customer demands that drive it.
Long-term retention MSP leaders that invest in the education and development of their staff often bemoan the fact that other companies can wind up benefitting from those investments. But people will inevitably leave a company if they don’t feel valued and aren’t incentivized to stay. Customers notice this turnover—and are usually not that happy about it. MSPs should therefore take reasonable steps to keep their best people on board. MSP leaders should also recognize that when they hire someone new, they’re probably benefitting from the investment that person’s previous employer made in someone who ultimately left their company. In a free labor market, no MSP’s talent pipeline is an entirely closed system—so everyone benefits when employers invest in their people.
EFFECTIVE MSP HABIT #7: Pick the right partners
Channel players have always had to choose their vendor partners wisely. Key criteria for MSP partners therefore include:
● Solid technology. Technical excellence is still important to MSPs. But reliability and simplicity can be more important than traditional “speeds and feeds.” That’s because MSPs need to avoid downtime and glitches that undermine customer satisfaction. They also need to avoid
implementation and integration snafus that can eat into profit margins.
● Ease of use. Ease of use has always been a desirable product attribute, but it has become much more so now that MSP operating margins depend on it. MSPs should therefore look for partners providing solutions that are clearly designed to be as intuitive and self-configuring as possible.
● Responsive support. Responsive technical support has also always been important to channel players. But the customer satisfaction imperatives MSPs face make it especially important that they can get fast answers on a 24x7x365 basis. The typical outsourced/offshored support model rarely cuts it when service to a customer is actively compromised. In fact, it may even make sense to work with a partner who can support the customer directly where appropriate.
● Service-aligned cost structures. MSPs have to be very careful about the cost structure they build into their service offerings. Cloud-based service providers that charge for every unit of utilization, for example, can put MSPs in the uncomfortable position of having to ask customers for too much extra money following an unanticipated spike in business activity. A better approach is one that accommodates such spikes in the interest of long-term account retention.
● Reporting and metrics. Because MSPs take full responsibility for service outcomes, they often require substantial insight into availability, utilization, and other aspects of the technical environment. They may also have to provide a variety of reports and dashboards to their customers. The right vendor partner should be able to provide this kind of reporting.
● Solution completeness. MSPs need to keep service delivery as simple as possible. To do that, it helps to limit the number of “moving parts” that need to be integrated. It also helps to not have to manage an excessive number of vendor relationships or create excessively complex cost structures. Vendor partners that deliver complete solutions can help MSPs achieve all of these objectives.
Hopefully you’ll find these real-life insights helpful. if you’d like to learn about 7 more habits of successful MSPs, download our ebook from here