How to start an MSP successfully
From the dawn of the computer age in the mid-20th century to today's digital-first economy, information technology has grown from a niche market to an integral component of global commerce. As IT systems become more complex, so too are the demands placed on businesses to manage them.
Managed service providers (MSPs) are essential to the ever-evolving digital landscape, providing a wide range of services to help organizations maintain, secure, and optimize their networks. For would-be entrepreneurs, starting an MSP can be a great way to leverage knowledge and experience in the IT field to create a successful business.
But while the potential rewards of starting and running an MSP business can be great, getting up and running can take time, dedication, and a thorough understanding of the associated costs and risks. This article will cover the key steps to start an MSP, from honing a skill set and defining a niche to protecting your business.
Define a concrete skillset and niche
Many believe that starting an MSP business requires a given provider to offer all-encompassing IT services. But in reality, your skillset and focus will determine the success of your business. With this in mind, identifying an area of expertise, like cloud computing or cybersecurity, is a crucial first step to plotting your company's future success.
In the 1980s, the late Professor Theodore Levitt of Harvard Business School argued that a business's most significant opportunities for growth might not come from broadening its customer base, but rather from narrowing it. By focusing on a particular set of competencies, MSPs can provide their clients with specialized expertise and service tailored to their needs.
In the same vein, MSPs should also be thinking about what an ideal customer would be for them. Defining a target customer profile ensures that you are providing the best possible services for that group, versus trying to be a generalist.
The IT industry encompasses a wide range of services and solutions, so when it comes to establishing an MSP business, distinguishing between those you can offer and those you can't is critical. Identifying the area of expertise and niche of your MSP business will help ensure that you deliver quality services and solutions that meet your customers' needs.
Some key areas to consider:
- Cloud computing and hosting services
- Network security solutions
- Data storage and backup
- Help desk and tech support services
- Business continuity planning
- Remote monitoring and proactive maintenance
- End-user training and support
In the early stages, defining the scope of your operations can be challenging, and it's vital to remain open-minded about the possibility of broadening or narrowing your services offering in the future. For example, are you looking to provide broader IT support, like server and system administration, or deep expertise in a specific area?
Should you provide general help-desk support or specialize in specific fields like cybersecurity? This may be the difference between building an MSP vs. MSSP (managed security service provider). Whether you focus narrowly or broadly, make sure you understand the customer needs in your chosen niche and that you have the resources to provide the best service possible.
In some cases, what services you provide may be impacted by the needs of your customer base. To see why so many businesses need managed services support, check out our eBook, Are managed services the right move for your business?
Understand profit vs. loss and value vs. cost
While providing IT services is the core purpose of any MSP business, entrepreneurs must also understand the financial side of their operation. Before opening for business, understanding profit vs. loss and value vs. cost when offering services and solutions is essential for long-term success.
Most people today have a basic understanding of how to perform a cost-benefit analysis, but many young startups need to take the time to analyze their pricing models thoroughly. How much is each service or solution worth to your customers? How much does it cost to provide them with that service or solution? Is there a better way to structure your pricing model?
These are the questions you must ask yourself when understanding costs and profits. Doing so will help you set prices that will make it possible for you to profit while also ensuring that your customers are getting value for their money.
IT is one of the most rapidly evolving sectors of the global economy. As such, keeping track of industry data will provide crucial insight into how best to structure your enterprise for success. Whether you're considering starting an MSP business or looking to optimize your current operation, read our report, The SMB Opportunity for MSPs: 2021-2026 to gain further insight into the market and uncover strategies for success.
Work these understandings into your pricing strategy
Understanding the theory and fundamentals of growing a business is one thing, but putting it into practice can be challenging. To ensure that you're offering competitive prices while safeguarding your profits, you'll need to develop a pricing strategy that works for your business.
Creating a pricing strategy starts with assessing the market. Researching your competition and understanding their services and prices will help you to position your offerings accordingly. For example, will the MSP model best suit your business, or will structuring your services as a value-added reseller (VAR) be more beneficial? When it comes to MSP vs. VAR, both are viable options, but you want to see what fits your niche in the industry.
Once you understand the nuances of your chosen market, honing in on your target customers will help you develop the best pricing strategy for your business. Are you targeting smaller companies or larger organizations? What services and solutions will they need, and what kind of prices will they be willing to pay? Combining your understanding of the market with your target customer's needs will help you to develop a pricing strategy that allows you to maximize profits while also providing your customers with fair prices.
Don't forget the hidden costs of doing business
Starting a business is exciting, but unforeseen costs can quickly derail your progress. Expecting the unexpected and planning for unforeseen expenditures can be the difference between success and failure. While the cost of hardware and software solutions is easy to foresee and plan for, other costs like marketing, travel expenses, and employee training can be more difficult to anticipate.
Think through the services you plan to offer, and make sure to factor in any additional costs associated with them. For example, suppose you are offering managed IT services. In that case, your business will need to factor in the price of hiring and training employees and any additional costs associated with maintaining your customer's systems.
If you're offering remote backup services, you'll need to consider the costs associated with storing your customers' data in secure offsite locations and the costs associated with managing the backups.
Understanding the total cost of providing a service or solution to your customers will help you to create a pricing model that is both competitive and profitable. Automating specific processes and partnering with established vendors allow you to keep costs down while maintaining and potentially improving the quality of your services.
ConnectWise offers tailored software solutions for MSPs that can help to streamline and automate many of the administrative tasks associated with running your business. Our manageable and reliable MSP software provides a comprehensive suite of tools for planning, executing, and automating operations, freeing up resources and allowing you to focus on what matters most - delivering quality services to your customers.
Be sure to protect your business
As an MSP, you'll be responsible for managing mission-critical systems for your customers. As such, you'll need to ensure that you have adequate protection in place for your business and your clients' sensitive data.
Data protection starts with developing policies and procedures to ensure the security of customer data at all times. You'll need to create a data protection policy, document best practices for handling customer data, and define roles and responsibilities so that your team knows what is expected of them.
In addition, investing in robust cybersecurity solutions like firewalls and antivirus software can help to detect cybersecurity threats. Maintaining regular backups of customer data can facilitate faster recovery in a disaster, and investing in insurance policies can help provide additional protection in the event of a breach.
Protection also means legal support for your business as well. Establishing a strong managed services agreement will help set expectations with your clients in terms of your working relationship.
Find training opportunities for your team
To offer quality services, your team must have the right skills and experience. Training can ensure that employees have the necessary knowledge to provide high-level services.
Find out what certifications and qualifications are recommended for your services and create a training plan outlining the steps needed to achieve those goals. A business is only as strong as its team, so developing your personnel is crucial to scaling your business.
To dive deep into how these pieces come together, download our eBook, How to Successfully Grow and Scale Your Business, today.
Creating detailed documentation of services and processes is critical to running an MSP business. A well-documented system enables your team to refer back to instructions quickly and reduces the risk of mistakes. This also helps to free up resources so that employees can focus on providing quality services.
When creating documentation, make sure to:
- Clearly outline the steps needed to perform a task
- Define roles and responsibilities
- Establish processes for emergency scenarios
- Develop contingency plans
Clearly defined and documented processes help ensure your team can efficiently and accurately manage customer systems.
Build a community with customers, peers, and vendors
Building relationships with customers, peers, and vendors will help to foster a sense of community and create opportunities for collaboration. Utilizing customer feedback to identify market trends can help you stay ahead of the competition, while keeping up to date with industry trends can help you stay on top of new services and technologies.
Creating relationships with peers helps promote a sense of community and engagement in the industry, while partnering with established vendors helps you to keep costs down. Engage your partners in conversations to share industry insights and develop strategies for success.
In today's world, networking is essential for growing and scaling your business, and investing time in building relationships can significantly impact your enterprise's continued success.
The good news here is that there are already several existing communities for new and veteran MSPs to come together and share knowledge. ConnectWise’s IT Nation is the foremost global community of peers, thought leaders, and experts in the industry.
Don't be afraid to be boring
In managed services, reliability and consistency trump glamor and flash. Managed service providers must deliver reliable and consistent services, so feel free to be boring.
As you begin your journey, developing a solid business model that emphasizes reliability and consistent service delivery should precede flashy marketing and gimmicks. A solid foundation built on reliable and consistent service delivery will help ensure your business's long-term success.
Become a value-added managed service provider
The goal of any managed service provider should be to become a trusted partner, not just a vendor. By offering value-added services, such as proactive maintenance and customer education, you can differentiate yourself from other providers and become a trusted partner in the eyes of your clients.
Don’t let recession concerns hold you back
With the current economic headwinds, it’s easy to fall into the mindset that this is a bad time to start an MSP, or any business for that matter. Not necessarily. Compared to other industries out there, the outlook looks brighter for new MSPs that are able to demonstrate value to their clients.
The main reason for this is that MSPs, by nature, help small businesses with automation and efficiency. These are two factors that are essential for businesses right now, so that makes a lot of opportunity for a new MSP. Worldwide IT spending is actually expected to increase 2.3% in 2023, so be ready to take advantage.
Starting an MSP business is a big step, and while it can be overwhelming, providing world-class service at the forefront of the IT industry is incredibly rewarding. Whether you're just starting or looking to scale an existing business, you need both a comprehensive strategy and the right tools. ConnectWise’s Business Management suite can help ensure your MSP business is positioned for success and efficiency for years to come. Contact us and our team of experts to help you get started.