The $100,000 Managed Services Myth

It costs a small fortune -- $100,000 or more -- to become a managed service provider. At least, that's what some folks claim. Truth is, there are lots of ways to get started as an MSP without mortgaging your house or maxing out your business's line of credit.

First, let's start with some myths: Why do newcomers think they'll need a big checkbook to become an MSP? Part of the problem involves market research, and the resulting editorial coverage. Here's a prime example.

The Institute for Partner Education Development (IPED), owned by Everything Channel (formerly the CMP Channel Group), recently released a report stating that:

"managed services currently account for 11.5 percent of the North American channel's total revenue, representing a $42.9 billion market. That's up from 9.3 percent of total revenue or $31.31 billion just two years ago. And IPED predicts managed services will grow to 14 percent of total channel revenue or $57.16 billion in two years."
Overall, IPED and Everything Channel basically stated that the MSP market is growing very nicely, but many VARs and solutions providers remain wary of the MSP market. Plus, the potential transition to an MSP model can be difficult. I agree. Fully.

Myth Alert

Now for the problem. Everything Channel spreads fear, uncertainty and doubt about managed services by offering up the following solution provider quote:
"I don't want to invest hundreds of thousands of dollars and have these guys [Dell and HP] come in in six months and say, 'Here you go.' How would we recoup our expenses?"
VARs and solutions providers are entitled to their opinions. But there are two flaws to the Everything Channel story.

  1. Dell ain't going fully direct: There's a real risk of Dell and other manufacturers taking their MSP solutions fully direct. But I don't see it happening. Wall Street is mad at Dell for several years of lousy stock performance. The only way to lift shareholder value, profits and sales is through the channel.
  2. It doesn't have to cost $100,000 (or more) to become an MSP: It just doesn't!

Kick the Tires

Everything Channel should have pointed out that there are several cost-effective ways to transition into managed services, without breaking the bank.

During our June 12 Webcast, our three guest speakers (Scott Goemmel of PMV Technologies; Nick Vossburg of TechAssist and Jim Alves of Kaseya) all offered the same advice:
"Try before you buy."
Vossburg actually tested a range of platforms head-to-head for a few months before deciding to license one.

Mastering the Market

Another option is to sign up with a so-called Master MSP. In this model, you leverage managed services hosted by somebody else. Instead of paying a big lump-sum licensing fee, you pay a lower monthly service fee, and mark it up at a premium to your customers.

Lots of companies -- Do IT Smarter, Ingram Micro Seismic, Jamcracker, Symantec Protection Network, Secure My Company, and dozens more -- offer a range of Master MSP options (though offerings vary greatly from company to company).

Now here's the biggest irony of all: The main challenge facing MSPs isn't platform price. Rather, 44 percent of MSPs say their biggest challenge is marketing and PR, and only about 10 percent point to platform considerations as their biggest issue, according to a real-time attendee survey from our June 12 Webcast.

Yes, VARs need to watch every penny -- especially during these tough economic times. And you can spend big bucks building a NOC and licensing software. That's perfectly reasonable if your business model supports that type of financial investment.

But don't use the $100,000 myth as an excuse to delay your journey toward managed services.
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