Should I Launch A Managed Services Business In the Recession?
When the email hit my inbox it immediately caught my attention. A technology consultant wanted to know if (A) it's still a good time to launch a managed services business or (B) is it smarter to delay the launch until after the recession ends? I've got some strong opinions to share.
Frankly, I think the aspiring entrepreneur was asking the wrong questions. My knee-jerk reaction was to tell him to ignore the recession and press forward with the business launch. After all, CompTIA research notes that MSPs are holding up well in the recession.
Revising My Answer
But now that I've had 24 hours to digest his email, I'd like to revise my response quite a bit.
Generally speaking, I believe there's never a "bad" time to be an entrepreneur. Over and over again, great companies have been launched during bleak economic times. And entrpreneurs can't fight their DNA. They need to build new businesses.
But there's a bigger question here: Instead of worrying about the recession, aspiring entrepreneurs and would-be MSPs have to ask themselves far more basic questions…
1. Financials: Do you have your personal financial house in order?
- Do you live within or below your financial means?
- Do your credit card balances read "zero?"
- Can you afford to go six months — or more — without a salary as you build your business and your business assets?
- Is your family willing to make financial sacrifices while you pour money into your start-up business?
If your personal finances are a mess and you still have a day job then KEEP your day job until you can prove to yourself (and your lenders) that you can effectively manage money and live below your means.
2. Personal Commitments: Are your spouse and family willing to allow you to work insane hours as you create a business? Or would they prefer the comfort of a steady paycheck, health benefits and other "perks" from traditional career moves?
3. Talent: Do you have the right set of skills to actually launch and build your business? Technology. Financial management. Sales. Marketing. Yes, marketing. If you lack skills, how are you going to fill those gaps?
4. Co-Founders: Do you need to launch the business with a partner who brings incredible skills to the table that you lack? If so, does that partner share your financial goals and financial priorities? Remember: Money changes everything. If you don't have similar financial views from Day One then your business is already dead.
5. What Are You Running From?: This little gem comes from Mitch York, founder of E2E Coaching. York helps to transform executives into entrepreneurs. But before he begins a coaching engagement, he asks the prospective entrepreneur the following question:
- Are you running away from something?
- Or are you running to something?
In other words, don't launch a business because you hate your current job or because you're unemployed and don't know what else to do. Instead, run toward something that you'll love — whether it's a new full-time position or the dream of running your own company.
Bottom line: Sure, the recession is a factor as you weigh your potential start-up strategy. But it should not be the determining factor in your entrepreneurial decisions.
Co-Founders!! Very good idea if you can find the right ones. And as Joe says, they DO need to share similar financial goals, but i’d like to also add, they need to share your commitment and energy for the cause.
In fact, i’d perhaps go so far to say, this is more important that shared financial goals. Nothing will cause as many problems as starting a business with somebody you feel is not pulling their weight.
Chris Martin
HoundDog Technology
Easy, Affordable Tools for IT Support / MSP’s
Joe, your response really addresses the concept of doing a gut-check before starting ANY business, but I’m wondering if there’s more to say about starting an MSP business versus just hanging your own shingle and becoming yet another outsourced IT company.
I would be curious to see some feedback on what to check about yourself specifically before becoming an MSP – it would tie in well with what qualifies people as top MSPs. For instance, have you thought about pricing plans? Will you stick to your guns and only sign people who provide recurring income? Do you have a marketing plan in place? Will you have set business plans? What will differentiate your level of service from everyone elses? Will you have contracts?
I think you’re right on target on looking a preparation for starting something new, but I think there’s an opportunity to really explore the MSP vs. repair shop model in today’s economy where end users and clients are looking to shave regular costs.
Just my 2 cents.
Rich
VirtualAdministrator.com
P.S. ANY company starting out should read “E-Myth”…I’d be curious, again, if others have indespensible recommendations. I’d add Good to Great, the Go Giver and Who Moved my cheese to recommendations, but E-myth is required reading for people starting business in my mind.
Rich: Your two cents is valuable. And yes, readers: If you can raise MSP-specific considerations that would be great.
Chris: Yes, shared commitment and energy to the cause are crucial. Amy and I have a habit of helping each other out. Constantly. Sure, there are times when we truly need to “unplug” and recharge individually. I’m known to disappear (with zero notice…) to a theme park when I’m fried. But ultimately, we know we can reach each other at a moment’s notice for urgent matters, business deadlines, etc.
Also of note: Amy and I understand our individual responsibilities. I don’t have Amy’s business development, financial management or sales skills. And Amy doesn’t care to master SEO, online community development, site development, etc. So, we NEED each other because we don’t have a complete skill set to build/run a media company on our own.
Sorry to generalize but I think some MSPs make the mistake of partnering up with peers who have the same IT skills/interests. Instead, they should think more about starting businesses with peers who have different skills…
Absolutely Joe. I’d agree, it’s a not so good to start a MSP business with somebody who is good at the same area. Its much more valuable to augment your bag of tricks. I’d say as a minimum: Operational Skills, Technical Skills, Marketing Skills.
On Sales Skills … I think sales skills are inherent in a lot of IT guys, they tend to be natural advisors/solution builders, and (in my opinion) make fairly decent, ‘under the radar’ sales guys (if a little disorganised!) – A good CRM is probably enough. And, i think the fact that often these guys are ‘inadvertent’/’accidental’ sales guys can add to their charm. I often think of the people I really loved buying things from and they are often ‘quirky’.
When i speak to IT Companies/MSP’s generally they can do the tech, but are learning about marketing.
Ops, Tech, Marketing as a mix – Just my tuppenceworth.
Chris Martin
HoundDog Technology
Easy, Afforable Tools for IT Support / MSP’s.
Ahh, the good ‘ol E-Myth. I’d love to see a discussion of how to apply this to MSP/IT companies. Their example is the pie company. You need to have a pie making procedure lined up, and hire some pie makers while you run the business side of things. The problem applying this to my business is that the pie makers cost $60,000/yr plus benefits and as a very small (you might say “boutique”) MSP, that is the biggest barrier to growth.
Joe, I’d love to see a blog/article about how to grow your MSP, move to the next level, etc. I feel like I have all the models worked out, the potential client base is good, if not mostly smaller clients, and I could easily market and pick a bunch up. The only constraints are time and money…
Dave Dempsey
http://www.managed-data.com
P.S. Going back to the original question, it sounds like maybe he is a break/fix IT consultant/firm already. I think if he is already an IT entrepreneur than I would recommend reading some books on the managed services model (like Eric Simpson’s) to give him a good idea of what it is, what is involved, why you would do it, etc. That said, it probably is always a good time for IT companies to at least consider the MSP model, but it might not be for everyone.
[email protected]: Yes, some IT folks have sales skills. But are they closers? Can they ask for money? And do they know how to walk away from a proposed deal that is a losing proposition for the MSP?
[email protected]: You mention your biggest constraints are time and money. I think time is the biggest challenge facing most entrepreneurs. In our own business, lack of time is a killer. We’re bringing in some resources — sales, content, digital media — to help “grow” the business and execute our vision. And those new people also add to the vision, and help to refine our vision. Fresh perspectives = fresh opportunities.
Now, the challenge: I tend to be a control freak when it comes to content, and where Nine Lives Media Inc.’s sites are going. And Amy (my biz partner) tends to closely manage our business operations. But we’re learning to delegate, let go, and let talented people help to grow our business. This gives us more time to think about “what’s next” for MSPmentor, sister sites, and Nine Lives Media Inc.
[email protected]: To clarify for readers – Eric Simpson is CIO of MSP University. And yes, he has literally “written the book” (or at least one of the top books) on becoming an MSP.
Dave,
Great comment about E-Myth application to the MSP model. Process, process, process is the key to growing a successful MSP. Our executive management team is laser focused on developing repeatable and sustainable processes from the receptionist to the NOC. We collect and distribute corporate policies in a knowledge management system, review them from the top down, and work to ensure we control the quality of process execution.
But you can NEVER forget what brought you to the dance. For a short time we forgot that, although process is important to OUR growth, it isn’t what brought us to the dance. What brought us to the dance was superior customer service. So we started developing a culture around ‘Raving Fans’. Ken Blanchard wrote a short book on Raving Fans that each of our employees reads and internalizes. We reference it frequently and work hard to align our day to day business with Raving Fan culture.
To address the original question; should you start an MSP in today’s economic downturn (or drop off)? Absolutely, but the land grab is quickly growing to a close. Companies that are starting their MSP business today need to be opportunistic – not rigid. If a customer wants to use your services on a Tamp;M basis, let them. But work towards converting those customers, over time, to a managed services model by demonstrating the VALUE of Managed Services when compared to the amount of money spent in Tamp;M on an annual basis. If, after a year or so, the customer still sees no value or isn’t a good fit for Managed Services, you may consider letting them go if that business isn’t profitable for you. But I think rigid adherence to the MSP model that leads to turning business down that doesn’t “fit” the model is a bad idea in today’s tough economic climate.
KEYS:
Build Raving Fans
Be Opportunistic
Spend your time wisely
10% strategy + 90% execution = success
Doug Ford
President
The I.T. Pros
http://www.theitpros.com
Rich Forsen brought up a good question, “Will you stick to your guns and only sign people who provide recurring income?”. We are a relatively new MSP and have asked this same question and I am curious how others are answering this question.
Folks: Rich and Rich have raised a great issue… Are MSPs only signing customers that provide recurring income? Or in this economy, do you bend the rules a bit and take on some break fix/project work? If you are bending the rules a bit, what criteria do you use to make sure those non-recurring projects are good fits for your business?
TETI
TETI