If I Was Launching an MSP Today: 10 Steps to Consider

Generally speaking, I think most MSPmentor readers have been building their managed services businesses for five to 10 years. But what if you were building that business from scratch right now? Here are 10 steps to consider for startup MSPs — though the steps certainly apply to established MSPs that are looking to rethink their strategies for the second half of 2011.

1. Rethink Services: Take a look at ConnectWise CEO Arnie Bellini’s Modern Office blueprint. It’s not sexy. Instead it covers all the basics of IT services — everything from printer management to VoIP. Pieces of the strategy have floated around here and there for about five to seven years. But Bellini crystallized the discussion: Even as big cloud companies move into the SMB market there are dozens of IT services that VARs and MSPs can offer. Bellini made the point last year that VARs and MSPs should focus on help desk and vendor management:

Click here to view the embedded video.

I concede: At first I thought the advice was somewhat basic. Fast forward to the present and I’m starting to see the light. Seems like the best MSPs think of their help desk as an Apple Genius Bar — deliver superior customer experience and your customers will never leave you. Also, as a small business co-owner, I can see the value of vendor management. Our own Web integrator handles a range of vendor relationships for us — which allows us to focus on our core business: online media.

2. Rethink Pricing and Branding: At the recent Schnizzfest conference, TruMethods CEO Gary Pica told MSPs to offer…

  • One Comprehensive Solution: Stop promoting individual ingredients (patch management, remote monitoring, etc.) and instead sell chocolate cake (the total customer experience).
  • One Comprehensive Monthly Price: Stop offering line-item pricing for each ingredient, and instead offer a complete per-user, per-month price that covers everything. Of course you need to figure out your costs before setting a price, but the best MSPs charge more than $100 per user per month for all-in services.
  • A Firm Monthly Minimum: The best MSPs don’t accept business from super-small customers, and insist on monthly engagements that start at about $2,000 per business (roughly).

3. Rethink Cloud: At Schnizzfest, Pica told MSPs that they were over-complicating cloud discussions. He organized and prioritized cloud services into four simple categories for MSPs to pursue. And he reinforced his all-in pricing. Instead of charging a storage fee, a security fee, etc. — just charge a single flat fee (per user) for everything each month.

4. Rethink Devices and Bet the Business on Mobile: During meetings in Silicon Valley this week I’ve heard a consistent theme from Oracle and other major software companies: The big opportunity going forward is for channel partners to deliver a consistent user experience across all devices — desktops, notebooks, netbooks, tablets and smart phones. MSPs that master the mobility challenge are well positioned to profit for years to come.

Bonus: Start spending time at a local college campus. See and learn how students are using mobile devices and related applications.

5. Rethink Target Customers: Sure, focus on SMB. But at the same time pick three verticals to evaluate — perhaps health care, retail and financial services. Assign a specific person in your organization to own/research that vertical for three months. That dedicated person should:

  • Join an association focused on that vertical, and attend relevant meetings.
  • Meet with one target customer per week to learn more about pain points, legacy infrastructure and other information about the vertical.
  • Create a shortlist of horizontal solutions (PCs, networking, VoIP) that can be easily sold into the vertical.
  • Research a shortlist of vertical solutions that the target customers may need.

After the three months of research you should have enough info to evaluate which vertical is a potential long-term target for your business.

6. Rethink Ownership: Avoid the temptation to form a business with a partner who has skill sets that are largely similar to yours. Instead, go into business with peers who operate in different sandboxes — one person focusing on sales, the other on technology, another on financial management, etc. If your ownership team has entirely redundant skill sets you’re raising your monthly overhead without addressing weak spots in your business.

7. Rethink Debt and Lines of Credit: Develop lines of credit before you need them. Partner with vendors’ financing organizations before you need to. Check out the Channel Finance 25 for some potential financial partners.

8. Rethink Your Devices: Don’t spend outrageously on IT, but do carry the latest disruptive devices — tablets, Chromebooks, etc. Tell customers why or why you don’t like your latest device during meetings… Establish yourself as a thought leader on disruptive technologies that can either help or hurt your customers, then figure out how to monetize those learnings.

9. Rethink Talent: While you’re spending time time on local college campuses (see tip 4 bonus, above), be sure to partner up with colleges’ Career Development Centers to find potential interns and entry-level employees. Also, Always Be Interviewing — schedule one meeting per week with a person you’d like to potentially recruit to your company. Even if you don’t have positions open right now all that networking will pay dividends when you’re ready to hire.

10. Rethink Your Exit: Manage your company from Day 1 as if it was publicly held.

  • Track all of your key financial indicators closely — revenues, operating margins, profit margins, EBITDA (earnings before interest, taxes, depreciation and amortization), etc. Consider using an open book policy so that employees can get a feel why they need to help manage expenses while driving revenues.
  • Join a peer group organization to see how other MSPs manage their finances.
  • Standardize on PSA (professional services automation), RMM (remote monitoring and management), sales quoting and IT acquisition software to automate as much of your business as possible.

And most of all: Build your own assets. Instead of “reselling” or “brokering” the sale of third-party cloud services, figure out how to build your own branded services to generate monthly recurring revenue (MRR). Keep growing your MRR and profits and you’ll increase your company’s valuation. As your own brand and profits grow, potential suitors will likely seek you out.

In short: Your exit strategy should involve (1) building a highly valuable business rather than (2) focusing on a potential company sale before you’ve even booked your first customer.

What Did I Miss?

Which of the items above directly relate to your business? Which ones miss the mark? And what strategies did I completely overlook? I’m open to constructive criticism. Also, despite the headline I’ve got no plans to ever launch a managed services business because, frankly, I don’t have your skills. I offer the guidance above based on what I hear from a range of MSPs. I look forward to hearing how your business continues to evolve in 2011 and beyond.

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Service Desks: Self-Service Is Win-Win for MSPs, Customers

When it comes to profitably scaling a service provider business, there are two key requirements: First, delivering effective customer service that leads to more and more happy customers. Second, establishing the operational processes that enable this level of service, while boosting the efficiency and productivity of staff.

The service desk, more than just about any other platform or service, has a direct and fundamental role to play in both of these areas. A strong service desk can bring value to internal operations, and it can deliver differentiation in the market place. Therefore, it’s not overstating matters to say the service desk plays a very pivotal role in the MSP’s business performance and prospects.

Today, there are several approaches that you can take that will help your service desk support the growth of your business. Here, I’ll focus on one: providing customers with self-service access to the service desk.

Providing customers with direct access to information and processes in the service desk is one of the most beneficial things a service provider can do. This effort can both cut costs and improve customer service levels and satisfaction. That’s why instituting these capabilities should be job number one for any MSP that doesn’t already deliver them.

However, to date, a significant percentage of MSPs have not extended self-service to customers, even though a lot of service desk solutions deployed today support it. Why? Following are a few reasons:

  • Mindset. In many service provider businesses, the service desk has been viewed solely as an internal tool, a mechanism that helps internal IT staff to do their jobs. This mindset has shaped tool purchase decisions and limited the effort service providers have put into the service desk—and as a result, their current capabilities are going to work against them.
  • Limited knowledgebase. One of the key requirements of an effective self-service service desk is the knowledgebase. If service providers don’t have a robust, current knowledge base to leverage, the work involved in delivering self-service gets tougher.
  • Tool limitations. Even though many tools may ostensibly offer self-service capabilities, the reality is that many are too cumbersome or limited to use effectively. In many cases, tools weren’t initially designed with self-service in mind, so these capabilities are limited or difficult to use. For example, many service desk platforms don’t offer a robust Web client interface.

Getting Started

For those organizations looking to deliver self-service capabilities, following are two examples of services that can be offered, and how delivering these services can help:

  1. Self help. Service desks can be the tool customers use to solve issues themselves. For example, if a user encounters a problem with a printer, they can go to a self-service portal, get quick access to relevant guidance in the knowledgebase, and take steps needed to solve the problem. This type of service has two significant benefits. First, customers will be delighted. In many cases, they can resolve an issue far faster than if they had to submit a ticket and wait for resolution. Thus, they are happier and more productive. Second, this service can directly and significantly reduce a service provider’s costs, which can feed directly into profits or more competitive pricing.
  2. Ticket submission. Service providers can equip users with a self-service portal through which they can log in and submit tickets themselves. By doing so, organizations can save a lot of money by reducing the number of calls coming into service desk personnel. For example, many estimates indicate organizations spend $12.00 to $20.00 per tier one service desk call. If a service provider has 1,000 calls coming into the service desk call center each month, and can realize even a 10% reduction, that reduction can yield savings of approximately $2,000 a month. In addition, when MSPs enable customers to check status online, users can see on a real-time basis what the status is, and what steps have been taken—whenever they want. Consequently, service organizations provide greater transparency, so users enjoy better visibility and grow more comfortable and satisfied with their service provider.

In both of the scenarios above, service providers enjoy reduced call volume, lower costs, and increased margins. What other tasks on your plate will provide more worthwhile outcomes?

Interested in discovering some other approaches that can help you turn your service desk into a profit multiplier? Be sure to sign up for the upcoming MSPmentor webcast, entitled “Building a Service Desk that Builds Business: 5 Tips to Success.”

Ken Vanderweel is marketing director, service providers, Nimsoft. Monthly guest blogs such as this one are part of MSPmentor’s annual platinum sponsorship. Read all of Nimsoft’s guest blogs here.

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Channel Register Gets it Wrong, Claiming Cheaper Hard Drives Compete With Online Backup Services

Recently the IT blog Channel Register posted an article critical of a recent survey by BackBlaze, the Online Backup company. The survey showed (duh) that hard drive prices were getting cheaper. In the article Tim Worstall asserted that by posting those results, BackBlaze were shooting themselves in the foot. But he’s British, so Tim said it in a far superior way:

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Pew Internet & American Life Project Gives Us More Insight Into Social Media Users

Pew Internet reports, “The number using social networking sites has nearly doubled since 2008 and the population of SNS users has gotten older.”

The breakdown looks like this:

  • The average age of SNS users has shifted from 33 in 2008 to 38 in 2010.
  • Over half of all SNS users are over the age of 35.
  • 56% of SNS users are female.

The report is filled with interesting nuggets, such as:

  • Facebook users are more likely to trust in others and are more politically engaged,
  • MySpace users are more open to opposing viewpoints, and
  • LinkedIn users have more diverse social networks than users of other sites.

While fascinating to read and identify with the above findings, marketers should truly pay attention to these stats:

  • Nearly twice as many men (63%) as women (37%) use LinkedIn.
  • The average adult MySpace user is younger (32 y.o.), and the average adult LinkedIn user older (40 y.o.), than the average Facebook user (38 y.o.), and Twitter user (33 y.o.).
  • MySpace and Twitter users are the most racially diverse mainstream social network platforms. However, a large proportion of users of “other” social network services are racial minorities.
  • MySpace users tend to have fewer years of formal education than users of other social network services, whereas most LinkedIn users have at least one university degree.

These demographics may surprise you, or they may validate your own assumptions about which social media sites are best to engage in a dialogue with your customers. In either case, the differences between the social media options are becoming clearer as the popularity of social media increases.

Make sure to gut-check your social media strategy with the tidbits in this new report. You can download your copy at Pew Internet.

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You Stink At Sales; Here’s Why

If you’re like me, you were a great technician who decided to start your own business. As your company grew, you learned to be a good leader by being the best engineer your company. But sales? In order to be a good sales leader, you have to embrace sales and drive the adherence to a sales process. Not easy when you’re a techie at heart.

The reality is that most IT solution providers suck at sales, so we have boiled down the essential ingredients for sales success to make it easy for you to catch up and even get to the front of the IT sales wolf pack. In our experience consulting with our partners, we’ve seen some partners who are doing some of these steps, and some who are doing none. A rare few are executing all five.

1. Set Sales Quotas: You can’t measure achievement when you have no goals. Sales people need goals to measure success and to enable you to evaluate and reward their results.

2. Enforce Opportunity Recording: Make sure your team records all of their sales opportunities in your system so they are easily track-able and actionable. Don’t let them keep it all in their head or in disorganized disparate systems.

3. Hold Weekly Sales Meetings: Conduct weekly sales meetings at the beginning of each week to focus your sales team on their action plan for that week. Regular public accountability is a powerful motivator. Small team or large, this is vital.

4. Make Sales Capture Easy: Opportunity is everywhere; sales data needs to be easily captured so anyone in your company who finds a potential sale can quickly relay that information to a centralized location. This includes client referrals and even the landing pages on your website.

5. Follow the Sales Process: Choreograph the sales effort of your team and use a repeatable process that includes the 4 other Sales Success ingredients. Follow the best practices and sales process that is built into your professional services automation tool.

Adding those five ingredients will help you increase your sales and profits while adding accountability for your sales staff. Salespeople can easily juggle 20 times more opportunities than they had before, just by following the process and seeing it all in one place.

To hear more about the secrets to winning sales agreements and key strategies for increasing profit margins, you’re invited to join ConnectWise for a free webinar June 22nd with MSP legend Gary Pica, as a part of our Success Wise webinar series.

David Bellini is president of ConnectWise. Monthly guest blogs such as this one are part of MSPmentor’s annual platinum sponsor program. Read all of Bellini’s guest blogs here.

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Per User vs. Per Device: Managed Services Pricing Debate Ends

Within the SMB managed services market a multi-year debate has been raging: Should managed services providers develop price-per-user or price-per-device business models for MRR (monthly recurring revenues)? I heard a surprising answer to that debate during the recent TruMethods Schnizzfest event in Philadelphia, Pa. Here’s the answer and the background.

The surprise answer: Increasingly, some of the best MSPs user neither business model. Instead, top MSPs are pursuing a so-called “price per engagement” or “price per experience” model. Privately, top MSPs continue to figure out their per-user and per-device support costs, and then build in the appropriate margin. But publicly, those MSPs refrain from discussing per-user or per-device pricing.

Instead, the top MSPs offer a total services price — covering everything from help desk and NOC services to monitoring and management of IT infrastructure. Building on that theme, TruMethods CEO Gary Pica called on MSPs to stop selling ingredients (patch management, remote monitoring, anti-spam, etc.) and start selling chocolate cake (that is, the total user experience).

Hidden Numbers

During multiple sessions at TruMethods Schnizzfest, top MSPs described how they continue to generate roughly $100 to $130 per user per month in recurring revenues — without breaking out the individual per-service fees to customers. Moreover, several MSPs said that they no longer accept SMB engagements that fall below a minimum MRR (monthly recurring revenue) fee, typically $2000 or so.

Two MSPs who went on record:

  • White Glove Technologies CEO Tommy Wald, who said he’s using the price-per-engagement model to blanket small office customers. Instead of nickel and diming customers when they add a piecemeal service or a new managed PC, White Gloves’ contracts include a clause that allows the MSP to raise annual rates — roughly 3 to 4 percent or so.
  • masterIT CEO Michael Drake, who said he’s using the per-experience model. Although it sounds like masterIT still sells on a per-user level, masterIT no longer breaks out the price of each individual service. Instead, Drake pitches masterIT as a trusted advisor and/or virtual CIO to his SMB clientele. And for that virtual CIO service, customers are going to pay for the complete masterIT experience — rather than one-off services.

No Magic Bullets

Are all MSPs taking the approaches outlined above? Certainly not. During the TruMethods conference, plenty of established MSPs mentioned rising competition from aspiring MSPs that charge as little as $10 per seat for basic managed services.

But when low-ball or lower-price rivals emerge, leading MSPs like IT Solutions CEO Ted Swanson re-frame the customer conversation — pointing out that it’s impossible for aspiring MSPs to deliver high-quality service at low-ball pricing. When customers say a proposed price is too expensive, the best MSPs re-frame and re-set the conversation by stating: “Compared to what?” notes TruMethods’ Pica, himself a former MSP.

Once the MSP has pinpointed the customers’ frame of reference, it’s easier to re-set the pricing conversation and drive back to the original value and service delivery conversation.

Sign up for MSPmentor’s Weekly Enewsletter, Webcasts and Resource Center. Follow us via RSS, Facebook, Identi.ca and Twitter. Check out more MSP voices at www.MSPtweet.com. Read our editorial disclosure here.

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