The Doyle Report: 10 Questions Every MSP Should Consider in 2018
Happy 2018.
By now, you’ve read plenty on what experts predict for our industry in the new year. Here’s a quick summary: AI will take off. Security will continue to be a problem. And business will continue to boom.
It doesn’t take a genius to make these predictions. But it will take a true leader to formulate credible answers to the following questions, which will undoubtedly crop up where you work. So without further ado, ask yourself the following:
1. Are you absolutely sure your customers are fully protected?
Let’s get right to it: the bad guys had a very good 2017. They penetrated almost anything they wanted. Why? Because their targets (no pun intended) were asleep at the switch. In 2017, we learned, for example, that Equifax never had our back. Same with Yahoo, which apparently spent more energy on getting us to fall in love with Katie Couric again. Thanks to hefty payments from victims of ransomware and flush with cash from selling troves of data on the dark web, hackers are armed with more money to wreak more havoc than ever before. Oh, and more tools, too. (Thanks NSA.) This begs a fundamental question: Have you lifted your game to fight cybercrime the way that hackers have? Protecting customer data and mobile devices, in particular, will require more effort than before. Advising clients to “not click on anything suspicious” and keep abreast of software updates won’t cut it this year. One more thing: If you think cyber thieves aren’t coming after your customers, guess again. Security expert Brian Krebs says they already have penetrated your customers. Your best defense may be to start by focusing on your culture.
2. Are your growth plans tied to stock market appreciation or anticipated tax cuts?
Wow! Wasn’t Wall Street amazing in 2017? The tech-heavy NASDAQ index alone grew 28 percent in 2017. Low unemployment, the new tax deal and reduced regulation are just some of the reasons why. Consumer spending was another. And so was increased business investment. All this translated into increased spending on ICT goods and services. That’s the good news. The bad? The good times won’t last forever. Stock prices will suffer if interest rates rise too fast or if oil prices jump. They could plunge if global events take center stage. Think war with North Korea, Robert Mueller’s investigation into White House malfeasance, a messy EU-UK breakup and looming tension over a U.S. government shutdown sometime this winter or spring. Even though these events and developments are out of the hands of solutions providers, a great many I talk to are making bets and taking risks based on the mere hope that none of these will create problems for the channel. Don’t get me wrong: I believe 2018 is poised to be another good year for the channel. But I wouldn’t bet my business on the hunch that none of these will become a bigger problem in 2018.
3. Does news of “Increased M&A Activity” make you wonder if you should pursue a deal soon?
2017 was a good year for tech deal brokers, but not a record, as M&A analyst Martin Wolf notes: “The value of announced deals in North America has fallen to $1.1 trillion this year—a decline of nearly 30 percent,” he wrote in December. That said, Wolf is upbeat about deal making in 2018, which will be spurred by tax cuts, low interest rates and continued robust economic activity. Oh, and one more thing: interest in the MSP and ICT services sector on behalf of private equity firms. They are pouring tons of money into the sector, helping to create super regional MSPs and ICT consultants. All of this has led to big changes in the channel. Presidio, for one, is on the cusp of a new offering. ConvergeOne is set for an IPO. And Sirius continues to digest its acquisition of Forsythe, which it acquired in November. Which brings me to you: are you thinking about a major recapitalization or big merger? There’s plenty of other people’s money to play with. But be forewarned: payouts are taking longer, and multiples seemed to have peaked. The easy money may be behind you, in other words. But that doesn’t mean the big money is. Getting it into your pocket just might take a while longer than before.
4. Can you continue to keep pace with your competition without using professional management tools?
Spreadsheets and Google docs. Let’s be honest, that’s how roughly half of MSPs run their businesses. PSA and RMM tools? Too expensive, many MSPs says. Or too hard to use consistently, others say. But given the gains that professional MSPs are making at the expense of smaller, under-staffed and non-automated rivals, isn’t it time to consider stepping up your game in terms of professional management and administration? If your company employs more than five people or caters to more than 10 customers, then it probably is. Study after study reveals that MSPs who rely on professional tools outpace their rivals who do not. (Yes, many are produced by suppliers of these tools, but lessons learned from our own Channel Futures MSP 501 list and study suggests much the same.) The question for the small MSP is where to turn. Let’s be honest: the big players in the market have not been smart when it comes to engaging small, local MSPs. Their offerings have historically been over-priced. But that’s changing. Autotask, ConnectWise, Kaseya and others are all working on plans to make it more affordable and easier for the small MSP to go all automated in 2018.
5. Speaking of professional automation and management tools, are you ready for the upheaval that is coming in the PSA/RMM market?
One of the biggest stories in 2017 was Datto’s acquisition of Autotask in October. Tools and tech make for an interesting, if not disruptive business proposition. The deal of course, raises more questions than it answered. Will users of rival PSA and RMM platforms who use Datto backup and recovery technology be enticed to switch to Autotask technology? Will the deal portend to other tech combos that were unimagined just a mere few years ago? In a late 2017 interview with Kaseya CEO Fred Voccola, he said it likely will. Voccola went to far as to predict great upheaval in the space in 2018—led by his company principally. “You’re going to see some super cool stuff from Kaseya in 2018. I’ll make a bold statement: there will be at least two, industry-rocking acquisitions completed by Kaseya in 2018. You can write that down. Without a doubt, I’ll bet my career on them,” he told me in December. This space will be interesting no doubt. Are you prepared?
6. Can you reasonably expect to maintain or even increase your prices?
Speaking of Kaseya, did you happen to read its 2017 “MSP Global Pricing Survey?” It’s chocked full of interesting tidbits. But the one that jumped out at me was this: “By offering comprehensive product suites, high-growth MSPs warrant premium prices for these services, leading to higher overall average sizes of their monthly managed services contracts.” What is more, high-growth MSPs, Kaseya found in its annual pricing study, were able to actually raise prices in 2016 for their services. From the study: “50 percent or more of high-growth MSPs report pricing increases for 16 of 20 potential service offerings over the last 12 months. In stark contrast, lower growth MSPs only report pricing increases for 2 of the 20 offerings.” But is the tide turning, I wonder? MSPs I speak with tell me their prices are under pressure. Getting $250 per user from a small or medium sized business is getting tougher and tougher thanks to upstart MSPs who lead on price. Further increasing this pressure is the fact that customers today want backup and other capabilities thrown in for no additional premium. To offset price erosion, many MSPs have created separate security businesses or practices. But day after day, fellow MSPs drop prices and add more capabilities to their bundles. How low is too low? $150 per user? $125? $100? At what point does it not make sense for you to chase bottom feeders?
7. Will this be the year that you move into a vertical, develop your own IP or begin selling business apps?
Experts have long said, “you have to move up the stack to combat price and margin pressure.” In years past, this meant selling a more expensive piece of hardware. But in the modern cloud era, this means selling your own intellectual property (IP) or advanced software, including an application geared for a vertical market or business function. MSPs, VARs and ICT solution providers are told repeatedly that they must become business consultants in order to survive. But how many actually take the advice? The jury is still out. What is clear, however, is that booming sales have made many MSPs wary or lackadaisical. Why change, many ask? If not for economics, then how about for differentiation? You may argue “there is no need to change.” But if you find your business challenged to reduce prices, deliver more value or sell to new business buyers, you have to ask yourself how long can you depend on basic and increasingly commoditized horizontal, technology infrastructure sales and maintenance fees to keep your lights on?
8. Can you continue to get by on spending less than 10% of revenue on marketing?
Ask a typical solution provider how much he or she spends on marketing and most will acknowledge that the sum is less than 10 percent of revenue. Heck, most will confess that it’s less than 5 percent. If that’s where you stand, then it might come as a blow that studies reveal that the most successful solution providers spend upwards of 15 percent or more on marketing and sales related activities. That’s roughly three times what most spend. Who says so? Microsoft, that’s who. It measures the businesses of its worldwide solution provider partners to better understand what sets the best apart from the rest. Technical aptitude is one thing. Professional management is another. Customer satisfaction, too. But one real differentiator is how much partners spend on marketing. Top performers are building new websites, leveraging social media, investing in customer lists and telemarketing talent and more. They also use CRM tools such as Infusionsoft to launch email marketing campaigns and more. Where do you stand?
9. Will AI perform some of what you or your techs do on a daily basis better?
The answer to the above is yes. But not in 2018, 2019 or anytime soon. But in 2021, which is just mere three years away…? The answer is likely to be more upending than you may realize. Chatbots, AI-enable customer service systems and other forms of machine support are getting better and better. They will certainly be used to help customers reset passwords, reboot remote devices, alert administrators to unusual network activity and even fight off malware attacks. Right now, the tech world is divided between those who think AI will destroy jobs and those who think AI will create them. The real answer is somewhere in between. If you or your employees man a bench of techs who answer support calls all day long, then the science is pretty baked at this point: those jobs are going away over the next decade. If, however, you develop code that helps AI systems better understand the data they collect, then you’re in a growth industry. The net-net for 2018 is this: massive workforce disruption is not happening anytime soon—so long as “soon” to you is 24 months. But if you’re thinking longer term, start forming strategies now.
10. Do you believe that IT has done enough to diversify its workforce?
We all know that the workforce is changing. It is getting younger, better educated and more diversified. Studies have shown that a diversified workforce is good for your bottom line. So how are we doing in tech? Newsflash: nowhere near as well as we believe. This is despite the worthy efforts of Women in Technology, CompTIA and other groups. The simple fact is tech diversity pales (no pun intended) to what it does in healthcare, education and other fields. This winter, our friends at CompTIA will unveil a study that reveals a disconnect in the tech industry. Individual workers, the study finds, don’t think diversity is all that awful where they work, but anecdotal and statistical demographic evidence does not bear that out on a macro level. If you’re looking to gain an edge, think differently when it comes to hiring.
If you have some thoughts or comments, please let me know: thomas.doyle@informa.com.
