In-Depth

MSP Best Practices for the New IT Landscape

The MSP model continues to come into its own. We look at what's changed in the MSP landscape in recent years and talk to industry experts about what MSPs can do now to succeed. 

It's boom times for managed services providers (MSPs). In 2014, revenue from managed services totaled roughly $154 billion in North America alone, according to the latest "State of the Market" report from MSPAlliance.

Recent tectonic shifts in the technology landscape are giving MSPs more opportunities than ever to grow their businesses. At the same time, however, they're also presenting MSPs with new challenges to their traditional business models.

It's a Different Landscape
Take the bring your own device (BYOD) trend. "I think that has been the biggest change that I can point to in the past five years or so," says Dave Sobel, director of partner community at MaxFocus, a provider of remote monitoring and management (RMM) solutions with a stable of more than 12,000 MSPs worldwide. "If we go back a few years ago and we talk about managed services, it was a much more straightforward offering in that, generally, users had a laptop, or a laptop and a desktop, or a desktop. There were not nearly as many devices as there are now. An MSP has to deal with a lot more device types."

The proliferation of devices in turn means a proliferation of attack vectors. In this BYOD era, MSPs need to adopt a more layered approach to security rather than focus only on the perimeter, according to Sobel. "Gone are the days when the firewall itself is everything you need to do for security. You actually have to be thinking about security on all of the individual devices themselves, and making sure that they are properly well-managed," he says.

"We are now firmly in an era where transparency is paramount for service providers and where customers are ... extraordinarily aware of data privacy and security perils."

Charles Weaver, CEO, MSPAlliance

But in addition to addressing the particular security requirements of BYOD environments, MSPs must also address an increasingly security-conscious customer base, which by now has spent the last months and years being bombarded by news of international government spying programs and large-scale data breaches.

"We are now firmly in an era where transparency is paramount for service providers and where customers are...extraordinarily aware of data privacy and security perils," says MSPAlliance CEO Charles Weaver. With the ubiquity of cloud services, customers are more concerned than ever about where their data is located, who is accessing it, how they're accessing it and what they're using the data for, according to Weaver.

Besides muddying the security waters, cloud also presents a competitive problem for MSPs, notes Chris Johnson, CEO of Untangled Solutions, a health care- and facilities management-focused MSP based in Los Angeles.

"A large percentage of what used to be handled in a customer's office has been shifted to, for lack of a better term, the cloud -- whether it's an Amazon datacenter or a Microsoft datacenter. And the responsibilities to support those products, in many cases, have also shifted, whether it's public cloud or private," Johnson explained. "Someone else is taking that responsibility role. That takes a lot of the work off the MSP, but in a lot of cases, the MSP is now finding itself fighting to keep the relationship with the customer."

Taking on cloud-based services can also put MSPs in a financial bind. "The MSP landscape has to change because the cloud is forcing a race to the bottom," says Dan McCoy, president and CEO of Micro Enterprises and its subsidiary, TechSubluxation.com, a New Jersey-based MSP that is entirely focused on the chiropractic industry. McCoy points out that moving a customer to Office 365, for example, can cost significantly less than maintaining, monitoring, patching and backing up an on-premises Exchange Server deployment.

With MSPs finding less room to compete on price, they need to find other ways to differentiate themselves. That point is especially critical with major players from vertical industries like telecommunications throwing their hats into the managed services ring.

"Gone are the days when the firewall itself is everything you need to do for security. You actually have to be thinking about security on all of the individual devices themselves."

Dave Sobel, Director of Partner Community, MaxFocus

"Think of the folks that are supplying their communications equipment [to small to midsize businesses]. Telcos are now entering into the market to serve those small businesses from a technology perspective beyond telco. Same thing with office equipment [providers]," says Mark Connolly, vice president of Boston-based Continuum Managed Services LLC, an RMM provider that derives all of its revenue from its roughly 3,500 partners. "Not only does the technology change the landscape, but the players and the types of players that are addressing that market have changed dramatically, as well."

Narrow Your Focus
In this increasingly competitive and rapidly changing IT landscape, what can an MSP do to rise above the rest? A common refrain among the experts we interviewed was: specialize.

McCoy knows first-hand the benefits of finding a niche and sticking with it. Until recently, outbound marketing for his subsidiary, TechSubluxation.com, was divided roughly 50-50 between chiropractors and "everyone else." After deciding to focus his marketing efforts on just chiropractors, McCoy found himself closing more deals in the past month-and-a-half than he did in the previous eight months.

"Just because I got all of the noise out of the way," McCoy says. "I'm not trying to market to financial services, I'm not trying to market to insurance companies [or] everyone else I was kind of blasting to."

In general, being a jack-of-all trades won't result in growth or profitability for most MSPs, according to Weaver. "The profitability of MSPs today is very much related to how focused they are as a service provider," he says. "If what you do is big, if you're touching many different types of clients and you are dealing with many different types of services delivered to those customers, you're not going to grow your practice as much as you would if you were a focused service provider on a certain type of vertical market."

The exception is MSPs serving the small to midsize business (SMB) space. SMBs are more likely to sign contracts with as few providers as possible, while simultaneously expecting those providers to meet wider swaths of their business needs. "So, the more focused on SMB you are, the more likely you're going to have to be a general practitioner," Weaver says.

As a rule, however, vertical markets, particularly those that are more regulated, are where a lot of the money's at -- and MSPs know it. Of the roughly 10,000 MSPs that participated in the "State of the Market" report by MSPAlliance, nearly 60 percent described their target market as being health care, about 50 percent as being financial services and about 40 percent as being legal services. Businesses in these industries represent a sweet spot for MSPs because they all have a heightened and overlapping need for data security, data access and data retention services. Also, because they are highly regulated, businesses in these industries know the value of a partner that understands and can deftly navigate the specific regulatory guidelines to which they must adhere.

Partner Up
On the other side of the specialization coin, experts say MSPs should embrace partnerships to fill any holes they may have in terms of expertise or capabilities. This is a trend that's already evident among the vendors that many MSPs use, according to McCoy.

"There is a lot more integration between vendors," he says. "For instance, your PSAs [professional services automation companies] like ConnectWise, Tigerpaw, Autotask and your RMM tools, your cloud apps, your backup vendors, your spam filtering vendors and all of the pieces that we as service providers use -- they are becoming much more tightly integrated. They are all talking to each other."

Big Sur Technologies Inc., a Tampa, Fla.-based MSP focused on hybrid cloud services, is "really big on partnerships." That's according to its director of service and cloud operations, Charles Love, who also serves on the CompTIA Inc. MSP executive council.

"You need people that have a broader skillset...if you're going to be able to support all the solutions and hybrid environments."

Mark Connolly, Vice President, Continuum Managed Services LLC

"We use an outside e-mail provider," Love says. "I have hundreds of accounts, hundreds of different customers hosted outside the state of Florida for e-mail. Could we do it? Absolutely. But why? That's staff I don't need to hire, that's expertise I don't need to have in-house. The e-mail companies will do it far better than we can. Same thing for help desk, same thing for NOC [network operations center], same thing for backup."

Partnering can be particularly helpful for MSPs in an age of "hybrid" technologies, in which no two customers are ever likely to have identical infrastructure configurations and requirements. From customer to customer, MSPs must be prepared to work with wildly varying technologies. While that could mean hiring new people with wildly varying skillsets, that's not always possible, notes Connolly.

"You need people that have a broader skillset...if you're going to be able to support all the solutions and hybrid environments," Connolly says. "That might mean [MSPs] have to change the way they do business and partner with a software supplier, a services supplier or a vendor who can provide a level of expertise that they don't have in a specific area, so that they can continue to serve all their clients across a broad spectrum without having to have that expertise on their staff."

What it boils down to is MSPs not doing too many things all at once. "Have a subset and try not to go outside that subset," Love says. "Partner with somebody who can."

Know Where Your Leads Come From
Not all lead-generation activities are created equal; in fact, some are downright ineffective compared to others. However, MSPs may be wasting their marketing energy on outdated methods -- such as list rentals and cold calling -- for not much payoff.

In its "State of the Market" report, MSPAlliance found that referrals were the source of the vast majority of all new leads for MSPs -- nearly 90 percent. Online advertising came in at a very distant second with just less than 40 percent. At the bottom of the race were list rentals and print advertising, which accounted for just 12 percent and 10 percent, respectively. And yet, according to Weaver, an undue number of MSPs still believe that spending their financial resources and manpower on cold calling is the best strategy for lead generation.

"Other professions like physicians, attorneys, accountants and engineers -- they've all figured out that referral business is one of the chief ways that you create new leads," he says. "MSPs have been resistant to this concept for a while, but I think this is indisputable proof that we need to change our thinking about how we conduct new-business acquisition."

Weaver notes that there's a whole cottage industry built on sales and marketing consulting services for MSPs. However, the MSPAlliance survey strongly suggests that an MSP's best tool to build business is the good word of its existing customers, its vendors and its partners.

So how should MSPs go about getting those referrals? The key, according to experts, is service delivery.

Deliver Services, Not Technology
"Outside of [specializing], I think you've got to make service delivery No. 1," McCoy says. "If your service sucks, you cannot market more and spend time on marketing. You've got to fix your service delivery."

Customers that are considering doing business with MSPs are generally not technologists. Therefore, MSPs must be concerned less with selling them on the hardware and software, and more with selling them on the business outcomes of using that hardware and software. As Connolly puts it, MSPs should help their customers "be more focused on their business, not their IT infrastructure."

For plenty of MSPs, that's easier said than done. Sobel says many MSPs crash and burn in customer meetings because they unwittingly steer the conversations toward technology, but their customers are more interested in talking about business. "Often times, service providers think they're having the right business conversations and, in fact, they aren't. They're having technology conversations but not actual conversations with their customers about what the real business measurements and business outcomes are," he says.

Connolly advises MSPs to take a more "consultative" approach with their customers and to draw on their specialized knowledge. It's a notion that Sobel also endorses. "I think it's particularly important for [MSPs] to focus on that business knowledge that they bring to their customers because that's where they really differentiate themselves," Sobel says.

"People are paying you a lot of money to keep their business up and running. Go sit with them."

Dan McCoy, President and CEO, TechSubluxation.com

But service delivery is more than just knowing how to communicate with customers to close and retain contracts. It also means knowing how to give a level of customer service that goes beyond closing tickets. "It's the touch points -- making sure that you call [customers] up and say, 'Hey, you guys had this problem last week and I see that these tickets have been closed. Is everything OK?' We see MSPs all the time where tickets are being closed and no one's following up with the customer," Johnson says.

With so much of an MSP's day-to-day work for a customer being done remotely, those kinds of personal interactions are critical. MSPs who don't reach out to their customers regularly risk falling through the cracks -- out of sight, out of mind.

"I would assume of all the MSPs that have been terminated from a contract, there's got to be a huge percentage of customers that says, 'We never see them. Why am I paying $800 a month when we never see you guys?'" Love speculates. To cover that base, he says Big Sur regularly sends employees to make scheduled, face-to-face visits with customers.

McCoy recommends three steps MSPs can take to remind customers of their value. First, make sure to include the customer's higher-up executives on tickets. "If you've averted a major disaster, you make sure they know about that," he says. Second, send the customer monthly reports detailing what the MSP has been doing for them. This puts a spotlight on work that typically happens behind the scenes and would otherwise go unseen by the customer. Third, echoing Love's advice, do regular, in-person technology business reviews.

"People are paying you a lot of money to keep their business up and running," McCoy says. "Go sit with them."

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