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June 15, 2011

5 Min Read
The Economy vs. MSPs: Is There A Disconnect?

By Dan Berthiaume

Picture this: At the recent TruMethods Schnizzfest conference, managed services providers like masterIT said annual revenues were growing roughly 30 percent. And at the recent Ingram Micro Cloud Summit, scores of MSPs expressed optimism about their growth prospects. Meanwhile, U.S. financial markets have declined for six consecutive weeks. And there are growing fears on Wall Street that the U.S. economy is heading for a double-dip recession. What’s an MSP to do? Here are some clues.

The economy has been chugging along at a pace of slow but steady improvement for a while now and for many MSPs, competing in a tough financial environment is no longer a top concern. However, while it may well never come to pass, new warnings of a potential global economic “perfect storm” that could hit in 2013 are worth paying attention to, especially for MSPs who serve SMB customers.

The Perfect Storm Has Many Facets

Nourel Roubini, a New York University professor, is quoted by BusinessWeek as saying there is a one in three chance a “perfect storm” may strike. The perfect storm’s potential components:

  • Fiscal woes in the U.S.;

  • a slowdown in China;

  • European debt restructuring; and

  • stagnation in Japan may converge on the global economy in 2013.

Roubini says factors including high U.S. unemployment, rising food and oil prices, increased Asian interest rates and the disruptive effect of the recent Japanese earthquake could all combine to create the aforementioned perfect storm. Roubini also cites excessive public and private debt held in countries around the world and says markets may start slowing down as soon as the second half of this year.

What It Means for MSPs and SMBs

Granted, economic doomsday scenarios are nothing new, and considering how many are constantly floating around, inevitably some wind up being correct. Even Roubini only gives this worst case scenario a one-in-three chance of happening, and the real odds may be much lower. Still, MSPs should at least give some thought to what would happen if it actually arrives, and how they will react.

While MSPs can benefit from a certain level of economic downturn that results in companies scaling back headcount and in-house technology investments, the type of scenario Roubini is describing benefits nobody. SMBs would be hit especially hard in this type of economic environment, to a level where even MSP investments would be drastically scaled back. Following are a few brief suggestions on strategies MSPs who specialize in SMB clients can use in the event the perfect storm hits.

Focus on Maintenance: Even larger companies will drastically reduce spending on new technology, and SMBs will essentially eliminate it. The only silver lining in this perfect storm cloud is that SMBs will have an increased need for maintaining the existing systems they have and stretching their lifespans, both areas where MSPs can provide vital support. Get IT refreshes (PCs, notebooks, servers) started/completed in a timely manner ahead of any potential double-dip recession.

Assist SMB Customers With Mergers: In times of economic trouble, many SMBs find they cannot survive on their own and wind up merging with other SMBs or becoming divisions of larger companies. In either case, a large amount of IT customization and integration is required, and once again MSPs can play a critical role in helping the transition go smoothly. If you read about local companies involved in M&A activity, reach out to them to see if they need IT integration assistance.

Fasten Your Seatbelts: Basically, a perfect storm will put MSPs in the position of taking a wild ride. MSPs will need to fasten their seatbelts and be ready for any eventuality, including key clients going out of business, an inability to develop new clients, and clients being unwilling or unable to pay the bills. MSPs themselves may have to make some drastic internal cutbacks to weather the storm.

Again, nobody is saying this scenario definitely or even likely will happen. But given how unpredictable the economy and general global situation has become in the last decade, it never hurts to be prepared.

Reality Check

Before closing this blog entry let’s go back to the beginning of the article. As we mentioned: MSPs attending the recent TruMethods Schnizzfest and Ingram Micro Cloud Summit were genuinely optimistic about their business prospects.

So, are those MSPs ignoring economic warning signs? Certainly not. Privately, several MSPs at each conference tell us the economy continues to weigh a bit on their business. But SMB customer opportunities continue to grow for numerous reasons including:

  • Aging infrastructure: Plenty of SMBs remain stuck on Windows XP and aging IT infrastructure. Upgrades and IT projects were delayed during the deep recession of 2008. So even in a mix economy, some of those SMBs are finally opening their wallets for new infrastructure.

  • Disruptive technologies: The cloud, mobile computing, tablets and other emerging IT platforms deliver real ROI, predictable costs and closer customer engagements. SMBs are willing to spend on those areas to drive growth.

  • Slow hiring: SMBs have been slow to add staff, prompting many small businesses to seek outside guidance from MSPs for their IT needs.

For an ongoing economic and IT reality check, keep an eye on our Talkin’ Cloud Stock Index,  which tracks 20 publicly held cloud companies. The index, updated each Friday after U.S. markets close, provides a real-world reality check on monthly recurring revenue (MRR) IT trends.

Additional insights from Joe Panettieri. 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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