The managed service provider (MSP) space is highly competitive. Margins are tight, hiring and retention are challenges, and customer expectations are sky high. Whether you’re doing well and want to scale efficiently or are struggling alone and need to find ways to raise profitability, the implementation of these key strategies, best practices, and tips can improve your MSP business.
Create a Sensible Business Plan
There are many areas of MSP operations that require realistic and accurate planning. From launching new services to marketing campaigns and setting prices, the service provider doesn’t have much margin for error. Careful planning should include educating yourself, figuring out how to scale strategically, creating a marketing strategy, and enhancing existing strengths.
- Educate Yourself: Read books by business leaders and successful entrepreneurs, and listen to their talks at shows or online. Some of their ideas and habits can be translated into MSP operations.
- Strategize on How to Scale: Distill what you learn into a strategic plan on how to scale up profitably, rapidly, and effectively.
- Devise a Marketing Strategy: Your strategy shouldn’t rely wholly on existing customers. Look to upsell to existing clientele while opening up major new channels.
- Enhance Existing Market Strengths: Align strategies to serve a local market or specific niche even better by improving the volume and quality of delivery in those segments.
“Know before you go” has been a long-term business maxim. In the MSP world, there is always risk. Minimize it by doing as much homework in advance, being prepared, and carefully planning to give yourself the best chance of success.
Execute Your Plans Effectively
Planning must translate into real-world action. Management should translate strategy into effective activities that bring about real change. Actions taken must always be based on statistics, should never disrupt well-running services, must set expectations, and should execute plans relentlessly.
- Base Actions on Statistics: Base expansion on credible customer growth forecasts. Investing in personnel resources, spending big on marketing, and other expenditures (or projects that will tie up a lot of staff time) should only be done if the numbers support it.
- Maintain Well-Running Services: If you have a successful service, leave it alone and don’t disrupt it. Add additional services by hiring new people to run them or replacing existing personnel before they are moved.
- Set Realistic Expectations: Software margins are generally much higher than those achievable by MSPs. Don’t set expectations too high when it comes to margins or how some new service will boost profitability. Be realistic in planning and execution. Assume nothing.
- Execute Plans Relentlessly: Once the plan is approved, be relentless in completing it. If results are poor, be humble enough to review the plan and adjust it accordingly.
It’s one thing to devise a strategy for expansion and another to see it through to completion. Successful managers plan and execute well to ensure the viability and longevity of their MSP business.
Recruit & Train the Resources You Need
IT recruitment and retention have become more difficult in recent years. Headhunters are always on the prowl, hoping to entice valuable personnel and talented newcomers with promises of higher pay elsewhere. Thus, MSPs must recruit enough resources, understand how many customers they can serve, hire more people than they lose, increase hiring speed, and train people continuously.
- Recruit Enough Personnel: There’s no getting around having the minimum personnel complement in place. This means having enough trained people that you can deal with vacations, illness, turnover, and 24/7 service if you offer it.
- Know Your Customer Capacity: Calculate precisely how many customers your core team can serve. Include staffing as a key element of any plans to expand an existing service or launch a new one.
- Hire in Advance of Departures: Don’t wait until you lose one or two key personnel and can no longer deliver high-quality services. Always be ahead of the game on your staffing numbers.
- Streamline Recruitment so Hiring Is Fast: A steady flow of good resources is a sign of MSP health. Create processes to quickly bring on talented new hires.
- Invest in Continuous Training: Training makes personnel more competent. This arms you with the resources for expansion and ensures that the departure of a key person doesn’t cause devastation. Make sure that others are trained and available.
Hiring and staffing practices can make or break an MSP. Hire too many and margins suffer. Higher too few and quality dips, taking profitability with it. Staffing correctly is a vital ingredient in MSP longevity.
Plan to Partner with Other Vendors
MSPs wanting to add new services can’t wait a year to build infrastructure, write the code, and establish a new service. They need to develop partnerships who can instantly provide them with the additional services their customers need, avoid redeveloping tools that have already been created by others, white label services as their own, and outsource expensive elements.
- Get Vital Services and Tools: Unless you have top-notch developers in-house with plenty of time on their hands, it’s usually quicker and cheaper to partner with another vendor to gain access to new tools.
- Avoid Redeveloping What Already Exists: Leverage expert partners to ensure you have a solid solution before launching. Why reinvent the wheel when you can team up with vendors that have spent two decades developing a technology you wish to offer?
- White Label Services as Your Own: Your name should show up as the provider, not someone else’s. Otherwise, customers might decide to cut out the middleman.
- Outsource Expensive Elements: Some services, such as Security Operations Center (SOC) services, can cost a million a year to run when you take into account salaries, 24/7 coverage, on-going training, software, and more.
MSPs should stick to what they are good at and bring in others as a simpler and often less expensive way to add new services or expand existing ones. Sometimes it may even be wise to form a partnership with another MSP.
Select Your Partners Carefully
Some vendors provide a good technology tool but are found wanting when it comes to support. Others put the burden of deployment wholly on the MSP. There are also those that are willing to share risks and shoulder much of the support and deployment responsibility. Find out the exact capabilities of proposed partners, avoid those who may become competitors, and favor those with experience in your markets.
- Know Partner Capabilities: How well can the proposed partner accommodate on-prem, public cloud, and hybrid cloud solutions? Some are cloud-only or on-prem only, and that may be too inflexible for your needs.
- Avoid Conflicts of Interest: Could the partner use the relationship to become a direct competitor? Avoid potential conflicts of interest such as a vendor hoping to use your relationship to gain a foothold into the MSP market.
- Select Partners Who Know Your Market: Does the partner have the experience and knowhow to serve your target market? If you focus on geography, company size, or industry vertical, partners should bring something complementary to the table.
A good partner will enhance your business and bring about expansion. A bad partner can eat away at profitability, cause confusion in the market, and tie up staff time. Choose intelligently.
Fulfill Customer Needs
MSP success is based on delivering services that customers need in a way that either reduces their costs, increases their ability to deliver, or enables them to focus on their own core competencies. MSPs must match services to customer needs, stay in tune with evolving requirements, confirm that demand exists for services, and launch only the services that can be profitable.
- Match New Services with Customer Needs: Any new service must be something the user base needs and is willing to pay for.
- Constantly Learn About New or Evolving Requirements: They may be happy with your services, yet have an additional need in areas such as compliance, data protection, or some other area you can add to further enhance your relationship.
- Verify That Demand Exists for Proposed Services: Demand for new services must be long lasting and stable, so offer services that solve actual customer problems rather than services you think some customers may want.
- Expand Only Where You Can Be Successful: Security services are booming — but they are demanding in terms of salaries, time requirements, and expertise. It may be easier to partner up and white label than to grow your own.
The customer should always come first, and rich customer feedback, surveys, and market research should be used to inform management about planning, expansion programs, and how to improve sales and delivery.
Reduce Your Costs
No matter what field the MSP operates in, there will always be pressure to reduce costs. There are smart ways to go about it as well as potentially damaging approaches to slashing expenditure. MSPs should look to introduce automation, add more internal controls, provide thorough reports, and research upgrade costs thoroughly.
- Introduce Automation: Doing so in areas such as provisioning of services, customer care, and software downloads/updates is a way to raise efficiency.
- Add Internal Controls: As you expand, add further automation and internal controls to avoid drowning in complexity and to be able to scale up operations without adding more personnel.
- Provide Customers with Comprehensive Reports: Highlight the value of your services, the money you saved them, the problems you solved, and the incidents you resolved. This makes them feel good about existing services and encourages them to want more.
- Research Upgrade Costs Thoroughly: Before engaging in major upgrades of existing infrastructure, compare the costs of doing so to outsourcing the hosting of that infrastructure or sending it to the cloud. Include all hard and soft costs in your analysis so there are no surprises.
Cost cutting is often necessary. Done wisely, it brings about improvements without impairing service quality. Take care, though, to avoid cost reduction measures that make it more difficult to deliver top-notch services.
Bottom Line: Improve Your MSP
The MSP marketplace is healthy, but it is also highly competitive. No MSP can rest on their laurels. You must find ways to maintain competitive advantage, enhance existing services, augment them with profitable new services, reduce costs, and raise margins. The tips above provide guidelines MSPs can use to achieve these goals.