The Evolving MSP

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For Proactive MSPs, Expansion Is the Key

One thing you can be certain that every MSP wants to do is to grow their practice. There are really only two ways to go about that: One is to go out and create new customers, and the other is to sell more to existing customers. That's it.

You're probably thinking about the countless times you've heard, "It's five times easier to sell more to an existing customer than it is to create a new one." That's true, but have you ever thought about why? You already know your existing customer, and they know you. They trust you and they respect your opinion so that they'll consider anything you suggest. This cuts the entire front end of the sales cycle, the part that typically takes the longest. You've already pursued the account, made them aware of you, encouraged them to consider meeting you, penetrated the account, qualified them and proven your value. Sales cycle slashed!

What Else Can You Sell to Them?
Portfolio expansion needs to be a constant mission. You don't have to create a new service to generate great profits selling it.

The first "MSP" I worked with was Pivot Technologies in 1997. I was EVP at MTM Technologies (originally Micros-to-Mainframes) and we had acquired Pivot to expand our offerings. The term "managed service provider" hadn't been coined yet, so ours was a "network monitoring and management service." Our service connected to a customer's network and monitored the Simple Network Management Protocol (SNMP) management information base (MIB) in every device on the customer's network that had one. When anything went beyond threshold or otherwise outside of acceptable performance parameters, we saw it. We then assessed the anomaly, determined a course of action and reached out to the assigned resources to resolve it.

Truth be told, very seldom did a MIB indicate a problem. The bulk of our alerts came from either carrier outages or power outages. Our greatest skill was in threatening notification of the consumer affairs authorities. We were totally reactive.

Most of today's MSPs are in the midst of a journey across a continuum that began with "reseller" and ends with a complete transition to service provider. As they launch into this journey, they still have product sales to lean on, but the return on those sales keeps diminishing. The most successful MSPs have worked hard to reduce dependence on top-line lifting product sales. Some have eliminated product sales from their portfolio altogether, preferring to partner with a catalog house or other reseller to furnish products to their customers. They've realized that the slim margins available from product sales evaporate into logistics for moving those products and credit extended to customers during the acquisition cycle. They've decided to let those be someone else's problem.

Reactive monitoring and management services have become the base requirement for MSPs. What was our whole business at the end of last century is now the bar to entry. Many MSPs who began there soon found themselves uncompetitive. They needed to do more.

The most successful MSPs looked hard at their customers to figure out what more they could do for them, then sat down with their customers and directly asked them. What they learned is that the number of things customers need from them rises as the customer size gets smaller. The largest companies need them to extend and complement their own IT departments, providing additional skills during peak periods, and many of them have created great success by doing just that.

Midmarket and smaller companies need far more specific assistance, beginning with the administration of their IT estates. On any given day, a typical IT environment has many needs for adds, moves and changes. Users need to be onboarded and offboarded. Data sets need to be migrated. Security needs penetration testing or adjustments. These customers simply don't have the skills on-staff to perform these kinds of activities. They need someone knowledgeable to do that for them. And that person needs a backup. And the company often has no idea how to hire those people, nor do they have budget for more FTEs.

License management, optimization, backup assurance, failover testing -- the list goes on. The only limit to the services you can add to your portfolio is your own imagination and spirit of innovation.

There Be Tools Out There!
As there are many resellers who have been slow to transition to service providers, there are vendors that have been slow to realize the core change their partners have undergone. I first experienced this in the early part of this century when vendor representatives kept visiting me and extolling the enormous margins I could achieve selling their products. I would calmly explain to them that they were describing a fantasy, that there was no longer any substantial margin from product sales because our channel colleagues had discounted it all but completely out of existence. Logistics and credit swallowed the rest.

It's likely that many IT product vendors are still scratching their heads trying to figure out how to motivate their channel. Some are probably planning a return to direct sales. Others figured out the answer.

In the early days of the channel, there was something we called a "consultant's license." It gave the holder access to a software license not to sell to their customer, but to use on behalf of their customer. You needed to have a separate consultant's license for each customer you were using the software for. Having that license, you could charge your customer both for the availability of that software, and also for anything you did with that software. Software became a tool we could use to create new services to sell to our customers.

Citrix Systems saw this as a survival strategy at one point. They had just sold their core technology to Microsoft, which became the Terminal Server. Following the advice of some of their more astute partners, they became a forge for tools to manage virtual desktop infrastructure systems. They have remained among the foremost toolsmiths in the IT industry for several decades now.

Today, "toolsmith" has become the ball game. Smart vendors have re-imagined how they sell their products to enable channel partners to create and provide new services to their customers. The earliest of these, since the emergence of the cloud, has been software tools to facilitate migration from on-premises systems to cloud. Some have automated key processes, like running scripts, to make it easy for their partners to deliver new services. Others facilitate optimization of communications and other services.

Former BitTitan CEO Geeman Yip was another early IT toolsmith. "Especially with service providers, where margins are shrinking and it's getting more complex with fewer resources with which to do more," explained Yip, "one place you can lower costs is by eliminating all the mundane tasks. The things that are clearly documented standard operating procedures that don't require anyone to think about. We should be automating all that because that's going to allow us to be more efficient and more effective and more competitive."

BitTitan's MigrationWiz was one of the first great examples of how MSPs and other ITSPs can innovate new services based on new tools becoming available to them. As the channel moves further away from being a channel for the sale of products and toward being a community of professional service providers, those who apply their imagination to the innovation of new services and new offerings for existing customers are the ones who will grow their businesses most rapidly.

Posted by Howard M. Cohen on May 22, 2023