By Justin Crotty 2

Managed services as an IT service delivery model is here to stay. Now for the risk: As with any other relatively new market, the SMB managed service space is highly fragmented. There are hundreds of existing application and service vendors and just as many new entrants to the industry competing for solution providers’ mind share and market share. So how do you tell the good partners from the bad ones?

A decade ago during the dot-com boom and bust, a similar landscape presented itself to IT solution providers. Many businesses made emotional or hurried decisions when it came to vendor and partner selection. Some businesses were swept away by fancy marketing, messaging, and branding campaigns by new entrants and fly-by-night dot-com companies.  The results of many of those decisions are well documented.

The same caution and logic must be applied in today’s highly fragmented, early stage managed services market. Many MSP’s, application providers, and service providers may not be what they appear or what their websites, blogs, and press releases claim. Because most of these early stage companies are privately held, it is hard to get detailed information about them to help you make buying decisions and partnership selections. Future success, stability, longevity, and financial solvency for these small players and new entrants may be challenging or downright bleak — and their management teams know it.

Dirty Little Secrets?

Here are four things those management teams may not want you to know about their operations:

4.  I Run My Company with Three People Out of a Van Down by The River

Small is no indictment of quality or financial stability. However, it pays to be diligent when making MSP provider or partnership selections. Does the potential provider or partner have a sustainable business model? Can they demonstrate financial solvency? Are they capitalized appropriately to grow as you grow? Can they support your needs long-term? Look under the hood and ask questions about how their business is built. If they refuse to answer your questions or provide vague answers, steer clear. They aren’t being specific because they know you won’t like the answers.

3. The Only Metric I Care About is My Revenue Multiple

There is certainly no crime in building a business to one day reap the rewards when you sell or merge that business. However, when the revenue multiple is more important than product quality, good support, or solid operating methodologies, that can cause problems for clients and partners. Again, ask some tough questions. How is the company financed? Who holds ownership positions — employees and owners or VC’s and private equity people?  The answers will give you some indication of the time horizon that business is operating under. Beware of short-term thinkers and the churn-and-burn operators. Your best interests are secondary to theirs.

2.   I’m A Solution Provider Just Like You (aka I Sell to End Users, Too)

As a distributor, I get asked about selling to end-users every day by solution providers who are concerned that Ingram Micro will take their end-users direct. Yet those same solution providers have no qualms about doing business with MSP organizations that openly sell to end-customers. Those MSP organizations may even use the fact that they have end-user sales experience as a selling point in their messaging to attract solution providers as customers. If your partners and suppliers sell to end-users, they pose a potential competitive problem for you. Proceed with caution.

1. I Offer You Little Long-Term Value as a Partner

Do your homework. Look for substance beyond the bootcamp, blog, or white paper. Separate the spin from the reality. What does the potential partner offer you in terms of competitive advantage, long-term defendable value, or scale?  How do they make your company better? How do they make you look bigger? How do they augment your capabilities? What can they help you achieve that you cannot achieve on your own or with anyone else? What is unique, lasting, or significant about their value proposition to you?

These are uncharted waters.  Don’t navigate them alone. Call us to talk shop or find us on the web. We’ll help you make the difficult decisions critical to your success.

Justin Crotty is Vice President Services North America at Ingram Micro, Inc. He oversees Ingram Micro Seismic. Guest blog entries such as this one are contributed on a monthly basis as part of MSPmentor.net’s 2009 Platinum sponsorship. Find all of Crotty’s blog entries here.