MSP Endures Headwinds During 33-Year Run
Michael Price figures he’s pretty much seen it all during his 33 years as a reseller and managed services provider (MSP).
The owner of Silicon Valley-based MPA Networks has steered his firm through boon times and existential crises resulting in shakeouts that claimed more than a few of his competitors along the way.
Recently, Price spoke with MSPmentor about the earliest days of managed IT services and how he navigated his MSP through some tough market headwinds.
“We’ve been on a roller-coaster since Day 1,” he said.
MPA Networks got its start on April Fools’ Day 1983, and Price recalls it was the same month that IBM launched the personal computer.
The technology lover and former grade school classmate of Bill Gates and Paul Allen decided to leave his job writing programs for an investment bank.
“I quit my job and started selling PCs,” said Price, about the business he ran from his home for the first eight years. “I got stuck in the computer business and every time I tried to break into another business, I’d realize I could make a little more money doing this.”
A Hewlett-Packard authorized dealer, MPA grew steadily during the next decade and tallied some of its best sales ever in 1991 and 1992.
“The systems needed a lot of maintenance and there were very few people who could do it,” Price said.
But running a reseller and services provider in the Silicon Valley was harder than in many other markets, he said.
“Most dealers in the U.S. made money on huge margins,” Price said.
“Here in the Silicon Valley, we never made those margins,” he said. “That margin dealers around the country had to live on, we didn’t have.”
The culprits, he said, were big-box retailers, especially Fry’s Electronics, the bargain outlet that applied grocery store principles to computer hardware, sending prices plunging.
“It was more money to buy the piece from a distributor than what it would cost to get it directly from Fry’s,” Price recalled.
MPA was forced to adapt to the changing market conditions.
“You do all kinds of things to compete on the basis of a package deal,” he said. “We couldn’t make the money on the gear so we would do all sorts of managed services and packaged services.”
The operation was far from efficient. There was a lot of hands-on work in the field and driving to people’s offices.
“In essence, we borrowed that model from the mainframe business, which is like the services business,” Price said.
“We sold a lot of gear; about $1 million in hardware revenue but we didn’t make much on that,” he said. “We made our money on setting it up and maintaining it.”
Not long after the big-box retailer crisis, MPA faced its next challenge.
During a 12- to 15-month period in the early 1990s, salaries for network engineers in Silicon Valley went from $20,000 to $60,000, Price said.
“The reason was people were starting to adopt the PCs and there weren’t enough people to work on them,” he said.
“Our business was predicated on $20,000, not $60,000,” Price continued. “Most of the companies that hired network engineers just went bankrupt.”
An economics major with a penchant for studying business models, Price set out to again reinvent MPA Networks. This time, he took a page from the copier industry.
“They sell hardware and then sell services for maintaining them,” he said.
“I joined a copy machine industry trade group, the Business Technology Association,” Price said. “I learned their business. We copied that model and we applied their principles.”
That concept included single-call dispatch, where a dispatcher fields service calls and sets the schedules for engineers.
“You pack the engineer’s schedule solid that way,” Price said. “ We couldn’t charge more, but we increased billable hours by 300 percent.”
If management was ecstatic with the new approach, the technicians were not.
“Our engineers rebelled; they had attitudes,” he said. “We had to fire all the employees and hire new ones in order to get to six or seven billable hours from two or three.”
Upgrade Sticker Shock
Near the end of that decade, the firm faced another major headwind with the introduction of Windows 2000.
Before that, MPA would set up a network consisting of a series of dumb terminals connected to one machine with a hard drive that acted as a mainframe.
“Clients loved it because it was super cheap,” Price said.
But Windows 2000 meant a paradigm shift. Now every computer required its own hard drive.
“So when it came time to upgrade, the costs went way up,” Price recalled.
“The last time you did an upgrade, it was $20,000. This time it’s $60K,” he said. “We got fired by a lot of our clients.”
Those clients went to other solution providers, only to receive the same advice and similar quotes, he said.
Price said many of those customers returned to MPA in the years that followed, but the damage was already done.
“Eventually, we got past that by downsizing 30 to 40 percent,” he said.
The industry actually experienced a boon by 1999, as Y2K concerns fueled a rush of IT work.
“It was fantastic; one of the best years ever,” Price recalled. “Reservations for network upgrade projects were booked for more than a year.”
But by early the following year the dot-com bubble burst, sending prices for high-flying technology stocks crashing.
“The dot-com meltdown was worse in the Silicon Valley than anywhere else in the world,” Price said. “Bankruptcy sales everywhere so you couldn’t move any hardware.”
Unemployment soared. Personal and business customers largely disappeared.
“People would only spend money on maintenance,” he said. “Nothing new was being bought. We supplied maintenance on things that broke.”
Yet again, Price sought a way to turn his business back into the wind.
“I looked around at other industries with similar problems,” he said.
He found inspiration in the model of health care insurance and thought, why not technology care insurance?
“Basically, I cloned health insurance,” Price said.
Traction for Managed Services
His idea seems all-too-familiar today.
“Charge a company a flat monthly fee, and we would do proactive maintenance and free repair,” Price explained. “We started managing backups and patches and anti-malware.”
Pricing services proved a particular challenge.
“We tried lots of different pricing strategies,” he said. “We got really good at guessing.”
“Like insurance, we were willing to lose money on some clients,” Price said. “We’ll insure all of these people but lose on some.”
MPA’s owner said his firm was an industry pioneer.
“I was one of the very first to provide managed services and maybe the first one to offer unlimited services for a flat subscription fee,” Price said. “That worked very well and it got us through the dot-com meltdown, 9/11 and we still offer those kinds of contracts today.”
These days, MPA is heavily involved in cloud, and derives 70 to 80 percent of its revenue from services, a percentage that hasn’t changed much since about the turn of the century, he said.
MPA Networks ranked No. 378 on the 2016 MSPmentor 501 ranking of the world’s top managed services providers.
And despite the difficult route through a challenging business, Price said he’s nowhere near ready to call it quits.
“We’re still having fun,” he said.
“I have an amazing team of great engineers and they’re great to work with,” Price continued. “I’m not sure what the exit strategy will be.”
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