What I wish I knew when I started my MSP: The true value of the managed service provider

Posted:
12/07/2020
| By:
Juan Fernandez

With technology now taking center stage in this new world, it’s an exciting time to be a managed services provider (MSP) or IT professional.

The future of our industry offers limitless potential for those of us in this space. However, this potential often leads us down the road of trying to be everything to everyone. The beginning of my career in the IT world came with many lessons. I learned the hard way about sticking to what I know and keeping my new ventures in line with the foundation of my business.

First, a few words of caution I wish I’d heard when I was starting my business:

  • It's hard to get customers
  • Success isn't just about your product or service
  • You develop attention deficit disorder when it comes to your offerings
  • Your perception of your business and the way others see it isn’t always the same
  • You are on your own
  • You won't spend all your time on the things you love, or even like
  • There aren't enough hours in the day
  • Taxes, taxes, taxes

To avoid mishaps around my advice above, define three principles about your business:

  1. Define your company and who you want to be as a business.
  2. Define your wealth and size targets.
  3. Define your desired outcomes and timelines.

Failure and tuition at the school of hard knocks

When I started my first company in the 2000s, I had a swath of ideas and general revenue forecasts, but I was missing something. While I understood the overall goal of my business, I forgot to prioritize the financial side.

For my business plan, I took the growing IT business needs of the day and turned it into a business. My company had a PC repair offering, a website building division, help desk, server and network offering, as well as a hardware sales offering. This plan seemed solid at the time. However, profitability was not a founding principle of my business. That was a harsh reality I had to face. I forgot to plan around profit, resulting in my first failure. I don’t know what hurt more, the fact that I was giving away my hard work, or that I had not built a sustainable business.

Most entrepreneurs face a similar struggle when they first start—that’s what makes entrepreneurs so resilient. I told my story to a mentor years later. When I explained my failure, he said, “We call that tuition—you have to pay to learn sometimes.”

Value vs. cost

Another commonality many businesses share at the beginning of their journey is finding their value proposition. Misidentifying a “less is more” option as a value is a trap many business owners and MSPs fall into.

While getting my business off the ground, I remember thinking that my value proposition was that I could do a better job at a lower price because my business was small. Well, I was right. I could offer my services for less than my competitors. My customers loved the low-cost options. However, this business model was not scalable. I was forced to look at other service delivery types to offset the sacrifices of the low-cost options and ultimately realized that low cost was not a business advantage. 

By focusing on being the lower-cost option, I devalued my skills to win business. In the end, I did myself, my employees, and my customers a disservice by discounting my services.

From this experience, I learned an important lesson about forming a business. To help you avoid my mistakes, I’ve included a list for new MSPs to follow below:

  • Identify your products and costs
  • Understand how much it takes to run an MSP business
  • Figure out what your per-seat charge will be
  • Calculate how many seats you'll need to cover expenses
  • Keep your gross margin at or above 50%
  • Right-size your customers and lead with value vs. cost
  • Measure and analyze data to ensure you’re on target

And most importantly—don’t be afraid to change your pricing.

One of the most common mistakes experts say they see MSPs make is not charging enough for their services. When MSPs discuss raising prices, oftentimes, it ends with them saying they lost almost no customers, and they wish they’d been confident enough to do it sooner.

Protect your business

My last piece of advice is that you need to protect your business.

By offering everything under the sun, you can easily fall away from your area of expertise and stretch yourself too thin. In many industries, the result is that orders fall through, and a few customers choose to go with a competitor. As an MSP, there are legal ramifications to offering services that are not in your wheel-house.

recent article on the Channel Pro network details how an MSP owner should protect their business from themselves.

It is paramount to understand the concerns around liabilities, exposure, and legalities. When you add services beyond your current capabilities or expertise, the potential repercussions if you don’t follow through on your commitments could be detrimental.

With MSP regulation on the horizon, all MSPs must review contracts and terms, ensuring that you’re doing what your marketing and contracts state. The most unpleasant place you will ever find yourself is on the witness stand giving your deposition to the judge and jury on why you didn’t follow through with your service agreements.

Become a value-added managed services provider

In closing, I know there might be a misconception or thought that the goal is to get any customer who needs IT services. However, that is incorrect.

The goal of a value-added MSP is to:

  • Manage customers’ environments
  • Deliver QBR’s and guide your customers to their next evolution using technology
  • Give strategic advice
  • Implement best practices within customer environments to ensure that they are getting the most out of the technology
  • Solve business problems with technology

Design your company for profit, know your value, and set yourself up for success. Don’t let customers drive you to zero because there is no value in giving away your services. Customers seeking good service will pay for quality.

As an MSP community, we can carve out our industry as a reliable option for businesses. We can become one of the most resilient industries in history, but to do so, we must have correct pricing and appropriate services.

The only way to make a difference is to be in business tomorrow and into the future.