When Bill Clinton ran successfully for President in 1992, he won largely on the strength of the campaign mantra, "It's the economy, stupid."
As legend has it, this statement was posted in the war room of his campaign headquarters. All service providers should have a similar mantra if they want to be successful and sell services profitably.
"It's the labor." (I'm omitting the "stupid" because I don't put service providers in the same category as politicians.)
Labor comprises the biggest piece of a managed services offering. Many service providers are astounded to discover that their greatest costs stem, not from the technology, toolset, or datacenter, but from labor. Labor during setup, and more important, the labor done over time to continue delivering the highest-quality services and ratio of time-to-money earned.
The MSP Alliance estimates that one hour of additional labor—that small tweak to a server, the addition of a new user or security filter—can eat up to 18 points of margin.
For those VARs and solution providers transitioning to the service provider model and operating on single-digit margins, 18 points is margin they can't afford to lose.
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Many long-time service providers aren't always aware of the time they spend delivering existing contracts. Technical and operations personnel sometimes are overly conscientious and go overboard in "making something work."
It's ironic that this customer-centric approach can actually be a detriment to the business.
What successful providers know is that they have to function almost as a manufacturer. The rule of thumb for any manufacturer is to keep the number of SKUs low, standardize on several key products and mass-produce to keep costs down and profits high.
This same model is embodied by the successful MSP. Standardizing on and productizing a set number of service offerings, such as the deliverables, setups and rollouts, in addition to ongoing maintenance, lead to a successful MSP business.
A standard set of services minimizes the number of errors during setup. In fact, AMR Research notes that 35 percent of all errors occur during the provisioning and customer setup process.
New platforms specifically designed for a multitenant model address this issue with a service-based approach. Automating the provisioning and incorporating standard services at setup can substantially reduce startup costs by as much as 6:1.
The trick is to select a services platform that operates almost as a "shopping cart" and allows you to build your services quickly and easily—much the way you would shop online and build your catalog order. Picture the following:
A "container" or "managed domain" is another name for a customer. Your "monitoring policy" equates to the business and operations definition of your service.
A true service-based platform allows you to define "monitoring policies" with a number of templates included in the product so that you can point and click to set up and define your service.
These templates should include the option of selecting from the thousands of known faults across different technologies and all the critical vendors. You apply monitoring policies across managed domains (customers).
In other words, as you add customers, they automatically map to pre-established monitoring policies.
As an example, you might sell a managed server offering that targets HP servers. A platform such as the one described above would automatically "know" all the different metrics that ensure the HP server runs efficiently and would select them for you when you clicked on "HP server."
You would then add options such as the period of time the monitoring takes place —after-hours only; 8:00-5:00—as well as assign the responsibility for the alarms to either the client or service provider or mix, depending upon the contract.
Once you've set up a monitoring policy, you apply it only once, whether it's at setup or part of an ongoing management update or change. The savings are exponential when you look at the ongoing labor costs to tweak and update customers.
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In short, a service-based platform allows you to make changes once and then push them out to thousands of customers simultaneously or set up new customers with predefined services in a matter of minutes.
By the same token, monitoring policies help enforce ITIL and other best practices by assuring you use the same consistent setup and service delivery best practices on an ongoing basis.
By doing away with "one-offs," or customizing every customer app or update, service providers are able to bridge the traditional gap between sales (what customers want) and operations (what is easiest to deliver), in addition to migrating the business toward a healthier mix of 80 percent standard and 20 percent custom deals.
While there is room for many service providers in this space, the market certainly benefits from healthy, profitable providers that keep costs in check and can pass on collective costs and expertise benefits directly to their clients.
Dan Phillips is Chairman and CEO of SilverBack Technologies, a managed services platform vendor in Boston. He was previously COO of Concord Communications and VP of Sales of Applix.
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