The three critical success factors for IT Managed Service Providers (MSPs)
msp | 29 March 2019
A boutique IT recruitment agency based in Australia, selecting, tracking and nurturing IT talent for IT companies and forward thinking IT Departments.
msp | 29 March 2019
Since stepping out of my MSP and into IT recruitment, I've worked with a lot of MSP 's and looked at what makes the larger, growing ones so successful. So, here’s my take on the 3 critical success factors I’ve seen that are common to successful MSPs in the small/medium sized business space.
(By small/medium I’m typically talking about MSPs looking after clients within the range of about 10 to 200 users.)
1. The primary company focus is Technical Support.
What do I mean by this? I mean that the company is built around offering reliable and friendly technical support, FIRST. The service desk, remote support or even going out on-site to complete support tickets is their bread and butter or core business.
They look at technically supporting their clients first, rather than projects or product sales. They establish a solid base for supporting their clients, first. They have the right systems in place, they're meeting or exceeding their client’s expectations and their support staff are friendly and engaging and leave every call with a customer having a smile on their face or at least with the feeling that they're being well looked after.
When good IT support comes first, everything else follows. The IT projects as well as any IT sales, hardware, software and cloud licensing all flow straight to the MSP without having to compete against other IT companies.
The client won't want to use another company when they are so familiar with the daily support that they receive from their current IT company. If they're loved by the users and issues are resolved quickly then they will not look outside of that MSP to do their next cloud migration, software installation or router upgrade.
IT support becomes the bread and butter income for successful MSPs. This means that projects and product sales then become the cream or the profit on top. The regularity of support income and the fact that at the start of every month invoices are flying out the door for all the support work that has been done or will be done is an incredibly stable financial platform for any IT business.
That monthly recurring revenue is what allows the MSP to have guaranteed bankable income month after month giving them the freedom to plan their next steps in terms of projects or investment within the business. They know they'll keep getting that support income month after month so long as they keep focusing on support and having that as the guiding force for their business.
2. A system for new client acquisition.
The companies that I deal with that are stable and growing all have solved the problem of how to obtain new clients in a consistent way, with clients that match their target market. This is a critical piece for an MSP. Many MSPs are built around their technical capabilities but they don't always understand marketing, business development and how to close new client deals. Having a system in place that consistently creates new lead opportunities and then someone inside the MSP, who can consistently follow up, qualify and close those leads at a reasonable percentage, will mean that the MSP can bank on growing their client base month-on-month at a predictable rate. This again will give them the confidence to invest further in their business hiring the right engineers to do support and projects for their client base which is the key to growth in a stable IT business.
3. A diversified client base
As MSP’s work in a small to medium sized business market they often have a naturally diversified client base. In business diversification almost always lowers risk. With the size of each client being relatively small, the income that is produced by those clients is spread across the entire client base and therefore no one customer typically would represent more than about 20% of the revenue for the MSP. MSPs therefore are naturally protected and usually more stable than other project based businesses who perhaps have a few large contracted customers that they rely on. If they lose a large client contract, they could halve the size of their business overnight.
Diversification across verticals is helpful as well and particularly in a city like Perth where we're very focused on the mining industry. If you’re mining centric then during a mining boom you'll be incredibly busy and struggle to keep up but when the bust inevitably comes, you'll be laying people off and perhaps struggling to survive. So, diversification across different industries is also helpful for an MSP.
When it comes to stability, these are the three pillars which stabilize an MSP and create a platform for growth. The most successful MSPs I’ve found have had a focus on support, a clear strategy for growth and a system that consistently produces new leads. Longevity then comes from revenues streams being spread across multiple smaller clients in different industries.
I'm keen to hear what you think of this. If you’re an MSP business owner, what’s your greatest challenge right now?