‘Competitiveness’ Increasingly in the Hands of MSPs
Recently, I sat down with "self-proclaimed" business guru Gary Pica from TruMethods to discuss what managed services providers (MSPs) can do to be more competitive.
The crux of the discussion focused on the need for MSPs to provide greater value to their clients. Pica went into detail on how companies could do just that. Finally, he explained to me some of the services TruMethods offers and how they are positioned to help MSPs succeed.
For those who are not familiar with Gary, he is somewhat of a legend in the MSP market. He has worked with MSPs in some capacity or another for decades.
Roughly 10 years ago, Gary sold his first MSP, Dynamic Digital Service, and launched TruMethods, which is a business consultancy and development company that works with MSPs on a subscription basis to help them increase sales and profitability. Among other things, Gary’s company offers over 150 hours of video training on everything from business planning to lead generation, sales processes, service delivery and more.
He helps MSPs drive up their value so that they can help their clients lower their “reactive hours per endpoint per month” (REHM) and increase their margins. He also runs a peer group called the Winner's Circle, which meets regularly in Philadelphia.
Here's an excerpt from our conversation. (For the full interview, click here.)
The Current State of the MSP Industry
When I asked Gary to describe the current state of the MSP industry, he opined that it's in a state similar to where it was 10 to 12 years ago when "the break-and-fix model had matured, and people were moving to recurring revenue streams."
Now, the once-profitable business of providing basic offerings such as end support and security backup is maturing. With so many companies leveraging the same tools, commoditization has taken root.
To wit, someone can walk into a trade show today with a credit card and walk out looking just as good as a company that has been in the business for ten years.
As a result, Gary explained, MSPs have to change their model. In particular, they must focus on developing a business relationship first and a technology one second.
"You need to create clear separation from your competitors with your value proposition, not your technology," he said of MSPs.
Knowing that everyone has access to the same technology, MSPs need to ask themselves: "How am I going to stand out?"
Standing Out From the Competition
Successful MSPs should have a two-part relationship with their clients. The first part involves employing a process to develop a deep understanding of clients in order to scale services and offerings that meet their needs.
The second part involves using math and science to find answers and strategies.
For the second part, Gary advises using the “RHEM” approach. This refers to “reactive hours per endpoint per month.” To determine your RHEM, take all the time you devote to tech issues per month and divide by the number of endpoints in your support system. That's your total tech per month. Then, take the amount of time spent on reactive measures and determine which portion of your time is devoted to it. Finally, work on reducing those numbers, driving down ticket times, and moving from a reactive to a proactive model.
Turning Reactive Models Into Proactive Models
Gary advises MSPs to move from fighting fires and toward dividing their business into the following five distinct delivery areas:
- Professional Services (Non-Recurring Issues)
- Support
- Centralized Services
- Consulting or vCIO (Virtual Chief Information Officer)
- Network Administration
These don't have to be full-time roles.
But separating proactive and reactive roles helps MSPs focus on a model that involves more revenue, higher seat prices and fewer tickets.
Ultimately, MSPs should focus on driving up their value. They shouldn't worry whether their services cost $3,000 or $3,700, for example. Rather, they should focus on providing the value that makes companies want to work with them, regardless of their price point.
Marketing Strategies for MSPs
To do this, MSPs must fine-tune their marketing strategies. They should have a prospect database, client relationship management software and a marketing automation system.
They should also focus on spheres of influence to find companies with which they can share their marketing efforts to open up more opportunities.
MSPs should create a 10-year business plan with three-year targets and quarterly actions. This effort should involve inbound marketing, content marketing and social media.
Gary continued, explaining that MSPs should gear their websites toward engagement rather than sales.
Most business owners, he said, are not going to buy an expensive subscription they see on a website. Instead, they’re more likely to buy from someone that provides them insight, information and value.
In particular, MSPs should identify how many first-time accounts (FTAs) they want, and break those numbers into manageable sales goals. The FTAs should focus on recurring subscriptions because they create a steady stream of revenue without increasing sales costs.
Addressing Shifts in Technology
When I asked Gary about the shift between on-premise and cloud-based business models, he told me that MSPs need to stay neutral.
They need to be able to go into any situation and find the solutions that best align with the needs of the individual client.
Potential for growth in the industry increases as the threshold for having an on-staff, full-time IT person increases. For example, companies with 40 people, a generation ago, had a full-time IT person on staff.
But over the last few decades, that threshold has increased to 100 employees, then 200 – and now, even more.
That means that enterprises with 50-100 employees are outsourcing their tech needs—a shift which ultimately benefits the MSP industry.
The Future of MSPs
In closing, I asked Gary what he thinks will happen to MSPs in the next 5-10 years. He said that the future of the industry is going to mirror where it has always been.
“What clients want is the same,” he said. “They want to run their businesses, and they need technology to do it.
“They want someone to figure [technology] out so they can have as little risk as possible and their people can be as productive as possible."
If your MSP stays focused on that reality, dealing with changes in tech trends is not going to be hard for you.
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