Bruce Teichman, vice president and partner at Atlanta-based Cogent Growth Partners, a mergers and acquisitions advisory firm specializing in the MSP, CSP and Hosted Services sector, shares three suggestions he'd apply if he were launching an MSP today.
1. Have a very specific focus in what you do – MSP is fairly commoditized already. Starting a business, and I did this when I had my business, you grab at a lot of different things: this customer is a little farther than you want; or a little bigger; or a little smaller. They want something just a little different. Do not be another "me too" shop.
Whether that means having a standard solution stack or sticking to a certain technology or a vertical market.
Decide to have a very specific expertise and say, "Hey, we're just going to do insurance companies and that's all we're going to do. And we're going to learn a lot of ‘new business’ applications, and be real experts in that."
Or the focus could be just about having a tight customer profile: mature businesses within this radius.
You have to be very picky with your clients and with the solutions that you're going to sell.
I've seen a lot of MSPs that are just all over the place – a little too flexible.
If you have that focus when you're hiring employees, you're going to hire the ones that know that solution stack, or have some experience in that vertical, or whatever it is.
You'll end up saying “no” to some customers, to certain employees, to some solutions that maybe you could sell.
But they just don't align.
If you have too many balls in the air, it's challenging to deliver correctly, to have all kinds of solutions.
If you're working in businesses where you don't really know their industry, I don't think you're being the kind of partner that you need to be.
There's just too much competition out there.
2. Focus on margin and profit, and not the top line – It's not about how big the deal is.
Some companies are concerned about whether the customer is going to be making (you) any money, and what it is going to add from a profitability perspective.
In fact I was just speaking to a company that was really excited about a very large deal they are doing, but they were worried about all the resources and the needs, and whether they were going to make any money on this.
Well, what's the point? You're going to add another $100,000 to your business, but you didn't add profit?
I think an MSP has to have some sort of process for client profitability, to understand on a regular basis, monthly or otherwise, which clients are making them money (and) which aren't.
Are they meeting the margins that they are shooting for. That could be around a particular solution. Or it could be around acquisitions.
With anything you're looking at, cash is king, and I think it's what supports any organization and growth.
Especially these days, with things like fixed-fee MRR or fixed fee projects, you have to really be focused on what you are making.
Some of the more successful MSPs that we've spoken to – the ones that are really knocking it out of the park, growing and making the best margins – are not even thinking about the top line.
If you asked them about their revenue, they don't know.
But they can ell you what they make.
When they think about the deal that's in their pipeline, they think about it in terms of making $3,000 a month in profit on that next deal.
They're not thinking about the top line.
I've seen many companies, they're all about (gross) dollars. And you start talking to them: do you understand your profitability by client?
They say: “not really, we don't have a mechanism for that.”
3. Build a culture around retention – Look, there's a lot you have to have: a sales engine, genuine expertise.
But a focus on retention is something you need to build a team and a culture around.
It's about retention of employees, but really about retention of clients.
If you are focused and you are picking the right kind of clients that are making you the money you need, then why do you spend more time chasing the next one and not keeping what you've got?
Obviously you need to deliver on your promises, and be consistent.
Build processes around keeping the clients that you have, whether that's formal processes like CSAT, customer satisfaction surveys, the NPS scores, feedback loops like that.
Or build more informal processes: just having a team of people that are calling customers, checking in, taking them out to lunch outside of the tech support conversations.
A lot of MSPs I talk to, for every deal they have coming in the front door, they got a client coming out the backdoor – or sometimes two.
Stay really focused on just the right kind of client and people, and focus on keeping that.
It's a little of "slow and steady wins the race."
That's the way to do it.
The other part of retention with MSPs I see, is that a lot of them are focused on just keeping everything working – making sure they can print, get to the internet, make sure everything works the way it did yesterday.
But in the context of technology, another part of retaining clients for IT purposes is that you need to implement new solutions for them. You need to suggest new technologies, new workflows.
You have to move them forward and line it up with their business.
Everything working like it did yesterday – that's not enough for client retention.
Clearly you need to add new clients, too.
But if you can keep anything from going out the back, you're going to grow that much faster and be more profitable.
A lot of MSPs I speak to say it's important, but they have no mechanisms for dealing with it.
Editor’s note:Comments are edited to improve readability.