Repetition Is Key for MSPs, Even if It Means Saying NoBy John Hazard | Print
To leverage their own economies of scale, MSPs must be able to repeat processes to drive efficiency, even if it means saying no to clients and turning away customers.News Analysis: The sales team at Ntirety Technologies, a managed service provider based in Boston, turns away business nearly every day.
So do the folks at Everon Technology Services, another Boston-based MSP.
It's the key to their success, principals at both companies said.
"If you want high margins, you can't do it if everyone is a one-off," said Michael Corey, Ntirety's CEO. "If you want to be scalable, and leverage the assets you have, you have to come up with standard offerings and never deviate from them."
"We tried Burger King approach'Have it your way.' It doesn't work. That got us into a lot of trouble," he said. "Scalable, repeatable, standard service offerings. It's cut and dried. This is what we do, this what we don't do, here is the cost. Can we help you?"
As the MSP model matures, practitioners are realizing the profit margin is based on the economy of scale a provider is able to leverage. By standardizing the process and automating as much as will be allowed, an MSP is able to leverage resources across multiple customers, driving efficiency in the delivery and boosting the margin, MSPs and vendors said.
Using that approach, Ntirety is able to run the same process for all of its managed Database Service customers, maximizing the efficiency of its Database Administrators, who can monitor and maintain multiple accounts remotely.
Even more impressive, removing wiggle room from the sales pitch reduced the sales cycle from three months to three weeks, and even 48 hours in some cases.
Ntirety found smaller companies, though reaping smaller contracts, made for faster sales. "Instead of making the pitch to seven database administrators who are afraid I am taking their job away from them and holding the contract over my head when I win, I sell right to the CEOs, the presidents, the business decision makers," Corey said.
Everon, a general IT MSP, goes a step further, to what CEO Michael Cooch calls a "no-touch approach."
Everon is able sell to and service clients nationwide without ever leaving the office. The company maintains continuous relationships by phone and deploys partners to remote customers only when absolutely necessary, Cooch said. Everything else is done remotely and automated, as often as possible.
"It is much more cost-effective than driving to every client," Cooch said. "If you're adding people every time you add clients you're eating into the margin. You can't do that if everyone who walked through the door needed customized solutions; I wouldn't make any margin."
MSPs essentially oversubscribe themselves, to maximize use of their resources, Corey said.
"You're banking your sales and delivery method on the fact that not every one will have an emergency at the same time," he said. "You're also banking on the fact that if you do the proper maintenance, you won't ever have an emergency."
This strategy requires Cooch and Everon to say no to many customers, he said. The MSP maintains a list of services and prices on its Web site and never alters either to land a customer, something that took discipline, especially early on, when sales were scarce, Cooch said.
Following that approach, Everon has driven margins near to 45 percent, Cooch said.
Saying no can be a smart decision, said Robert Scott, an attorney and partner with his brother in the Dallas law firm of Scott & Scott. Scott represents IT firms and often finds himself picking up the pieces when relationships go sour.
"The customer has to be the right one," he said. "There are things a customer does that can influence the profitability of the service provider."
By keeping exhausting records and measurements of sales, employees and delivery, MSPs will be able to judge which clients work and which ones shave margin, Cooch said.
"That's how you create value," he said. "If it doesn't fit, we don't do it."