How to Fail as an MSP, Part III (Common Mistakes to Avoid)

Why isn’t every VAR a successful managed service provider (MSP)? There are many paths to success, but aspiring MSPs also make many common mistakes that hinder their ability to become profitable. In part 1 and part 2 in our series, we covered eight common errors that MSPs make. Interested in becoming a successful provider of managed services? In this last part in the series, here are five more common blunders you need to avoid.

Let’s take a look.

Error 9: You think simple monitoring is good enough

The money is in remediation. It’s good practice to offer several tiers of managed service, which can vary by systems monitored, time of day coverage, response times, etc. But the most critical variable is the level of remediation that you’ll undertake when encountering a problem. Typical levels of remediation you can offer include:

1. No remediation – just report the problem to the customer.
2. Low effort, pre-defined remediation – e.g. restarting services and rebooting platforms.
3. Extensive proactive remediation – full-expertise efforts to restore services.

Through working with successful MSPs, we’ve seen that the pricing difference between the first level of remediation and the third level approaches three-to-one. Furthermore, fault, performance, and security monitoring often uncover opportunities for remediation tasks that are more project-related — such as upgrading a server that’s running low on capacity.

Error 10: You purchase a tool instead of investing in a partnership

Your service is only as stable as your vendor’s financial viability. In a managed services relationship, your customers are depending on the quality and availability of your service. You can hire great people and put together great processes, but inevitably you’ll also be depending on your platform vendor to support your business through good times and bad. Therefore it’s critical that you choose stable vendors – you’re depending on them. Questions to consider include:

• Have you reviewed your platform vendor’s financials? How do they look?
• Are they committed to this business for the long run?
• Does your vendor carry a brand name that is meaningful to the customers you serve?

Error 11: You decrease your cash-flow by purchasing licenses you may never use

Many platform vendors have purchasing programs that are “one-size-fits-all”… the problem is that these programs fit the needs of the vendors, not the needs of MSPs. If a platform vendor asks you to make an upfront purchase of a large quantity of either device-based or site-based licenses, a warning bell should immediately go off.

Here are some common scenarios:

• Buy 100-device site licenses for sites where you’ll never manage more than 10 assets.
• Buy 1000 device licenses… and buy them all right NOW. Put the recurring cost of all 1000 on your books, allow the license costs to limit your cash-flow for months/years, and never get a penny of return on the licenses you don’t deploy.

Error 12: You dabble in the market instead of committing to success.

If you planned to run a marathon would you buy the cheapest shoes and hope you trained properly to reach the finish? Most successful runners invest in the proper equipment and join running clubs or hire coaches to make the time they invest in preparing for a marathon worthwhile.

Why would you sell your MSP practice short? Think scalability up front. It’s tempting to just “try it out” and assume you can find your way to growth. Resist the temptation.

Many managed services platform vendors provide a pretty interface that can manage a handful of systems, but their limitations impact the profitability of your service offering as it grows. To build a scalable offering you need a defined set of services, alignment between what you sell and what you deliver, and sales & operations teams who are in synch. Tools that drive operational efficiency and features that focus on consistency across a large, growing customer base are keys to long-term success.

At the outset, you need to think about the following:

• Do you have the proper service offerings to meet your customers’ needs?
• Do you have the skills to run a NOC, build a Run Book and establish SLAs that you can deliver against? If not, is your platform vendor helping you in this area?
• Can your platform handle 1000s of devices through a single pane of glass?
• Do you have to set up each device one-by-one, specifying exactly what faults to monitor for, which performance metrics to track, and what security items to review?
• Is it easy to insure that all devices of a similar type and a similar level of service are being handled in the same, consistent way?
• If you need to change your services, can you do it in one place, or do you have to go customer by customer to make changes?

Error 13: You estimate your service costs using addition, not subtraction

Pricing for a high quality managed service with remediation typically averages over $250/server/month – and in many cases considerably more. In that situation your managed services platform should cost less than 10% of your revenue. Your largest operating expense will be the cost of your staff so select a managed services platform that runs with minimal administrative overhead. A tool that forces you to set up each device one-by-one is wasting your staff’s time. Find tools that reduce (this is the subtraction part…) your staff’s valuable time by allowing them to reduce time to set up new customers and perform ongoing MACs.

Error 14: You’re convinced every MSP needs a 24×7 NOC

Customers that depend on your managed services will often want 24×7 monitoring – indeed, they’ll often supplement their IT staff with a managed services offering for just that reason. But that doesn’t mean you need to construct a NOC that’s manned continuously. You just need to be able to monitor and respond reliably on a 24×7 basis. You need to choose a services platform that provides:

• Reliable pager capabilities built into your managed services platform, to notify off-hour staff;
• Web-based remote access to your managed services platform, so that staff members on call have the full capability available to them wherever they go; and
• Built in remediation capabilities – not light-weight external “hooks” – that include Remote Desktop, Telnet, and SSH, so that on call staff can remediate problems remotely.

Have you encountered the errors above — and additional mistakes? Share your best practices in the comments area below.

Peter Klanian is a senior channel services sales manager in Dell’s global channel group, which develops managed services software for MSPs. Guest blog entries such as this one are contributed on a monthly basis as part of MSPmentor.net’s 2009 Platinum sponsorship.