The managed IT services business has a bright future, with global growth expected to increase from $180.5 billion in 2018 to $282 billion by 2023. Yet, many MSPs continue to find it challenging to grow, optimize, and sustain (or exit) profitability. This eBook series sets out to offer critical guidance to MSPs on how to run their businesses better and smarter, growing their revenues and profit margins across pivotal maturity stages.
The market for MSPs has been continuing to flourish for the better part of two decades, and the future shows every intention of following that pattern.
However, finding new ways to grow business has proved to be a challenge for many managed service providers. This article has been created to offer critical guidance to MSPs on how to grow their revenues and profit margins across pivotal maturity stages.
- An early-stage MSP that is trying to acquire customers and grow revenue as quickly as possible to achieve scale.
- A mid-stage MSP that have achieved scale and wants to increase their margins by optimizing processes and cutting costs.
- A mature MSP that is profitable and needs to protect their revenue by retaining customers and growing wallet share.
Read on this article, guidance for MSPs that are trying to acquire customers and grow revenue as quickly as possible to achieve scale. The advice comes from the trenches; it’s not just written for MSPs, but by MSPs. This guide will provide useful insight on how to run a better and smarter business!
In the Beginning
New MSPs typically begin their journeys in one of two ways:
1) TRANSITION: After running a break-fix shop with a team of technicians and navigating unstable cash flow, the founder is on a mission to secure the monthly recurring revenue (MRR) contracts that are the hallmark of the MSP business model to smooth the unpredictability of hardware sales revenue streams.
“NSK (now Focus Technology Solutions) was in business before fixedfee- per-head even existed. It wasn’t bottled yet. We were essentially a [time and materials]-based provider. We were roughly 10 people, and a lot of what we did was onsite support. But a lot of it was reactionary. We were basically like plumbers.” — Tim Lasonde, Senior Vice President, Managed Services, Focus Technology Solutions
2) STARTUP: An entrepreneur who’s invariably technically astute (and probably worked at a lagging break-fix shop) goes out alone to “do IT better.” The entrepreneur might have a partner, a tech or admin, but they’re hands-on with every aspect of the business — from product management to sales and marketing to help desk. It’s their baby.
“I should’ve known better at the time, but I was pretty successful [as an IT guy]. But it all came down to me, and I knew that I needed to build something bigger than that — that was resilient to provide for me and my family. If you want to earn more money, you’ve got to work more hours, and that’s incongruent with a family and healthy lifestyle.” — James Ratcliff, Managing Director, Ratcliff IT
Sound familiar? Your origin story may vary in the details, but the challenges that your MSP business faces at this early stage are common. They all can be boiled down to one overriding goal: scaling faster.
The secret to scaling seems simple: sell to more customers. But on closer examination, scaling quickly and successfully grows complex. There are built-in capacity issues with either your sales or support organization — sometimes both.
SALES: If you’ve got only one salesperson (often the owner, who’s splitting time between sales and tech support), you need to look at adding another to fill your pipeline. But without more customers (i.e., revenue), it’s a challenge to make that personnel investment, particularly with no guarantee of success.
“For the first year and a half, it was just me. I hired one employee and we were still doing everything off spreadsheets and QuickBooks invoices. We didn’t have any tools as we slowly stood up [the business]. My first break came when I sold a hospital, and it doubled my revenue and allowed me to rapidly reinvest in my business.” — Whit Ehrich, CEO, Hill Country Tech Guys
SUPPORT: Similarly, you’ll need to hire more techs to increase capacity to serve more customers. But again, you need more customers (i.e., revenue) to afford to hire more techs. If you forge ahead, you also risk providing substandard service and losing customers as fast as you’re adding them (a.k.a. the “leaky bucket syndrome”).
“To me, it’s about making the investment [even if it initially slows revenue growth] so that when we add new clients, it’s going to work and we’re not going to do what some of my friends do — which is get a great new client and then lose it three months later because they can’t hold it together.” — Josh Weiss, Founder and CIO, L.A. Creative Technologies
Either way, it’s a vicious circle — but one that savvy MSPs have solved through automation and outsourcing.
Foundational Tools and Automation
The foundational tools of the MSP world typically fall into two buckets. The first is Remote Monitoring and Management (RMM) — i.e., software designed to help MSPs remotely and proactively monitor client endpoints, networks, and computers.
Through RMM, technicians can remotely install software and updates, administer patches, etc. for many endpoints at once. Not all RMM solutions are created equal, however: Continuum Command, for example, liberates technicians from the need to learn a new programming language or upskill, empowering MSPs to deploy staffers more effectively, accelerate resolution times and elevate their overall customer experience.
Then there’s the other bucket, Professional Services Automation (PSA), a software application suite that manages core business processes such as project management, resource management, and time and expense management. PSA also may include customer relationship management (CRM) tools for tracking sales opportunities and ticketing for help desk/ service desk management.
Often RMM and PSA tools are integrated. While these tools can be implemented simultaneously, PSA tools typically are added later, when profitability becomes a priority. (Note: We’ll address the benefits of PSA in Chapter 2: Maximizing Profitability.) RMM tends to be the go-to option for early-stage MSPs who are focused on doing more with less.
- Detect issues before they become major problems
- Boost margins by proactively avoiding problems
- Monitor and manage client IT systems remotely
- Reduce surprises and service disruptions
- Decrease client site visits as well as associated time and costs
- Administer tasks to multiple endpoints simultaneously
- Improve customer satisfaction and retention with greater uptime
- Reallocate techs to higher-revenue projects
Tim Lasonde was one of the early adopters of RMM as the founder of NSK Inc., which merged with Focus Technology Solutions in 2017. Ten years into NSK’s run, Lasonde implemented an RMM from Zenith InfoTech (now Continuum, a ConnectWise company) as a way to grow revenue without charging customers more.
[Using RMM] was a good strategy, and it worked really well. We were able to keep the same staff and grow our business. — Tim Lasonde, Focus Technology Solutions
Francis West, CEO of WESTTEK, cautions that RMM is simply a tool, and implementing it correctly is key. He speaks from experience, having invested in an RMM tool to scale his first MSP business, only to fail in execution and run out of money. Intent on not repeating the same mistake, West partnered up with Graeme Ison to form WESTTEK, with RMM did right using Continuum Command.
“Our priority has always been automation. We do so because it saves time and creates consistency. Without it, you’re chasing your tail.” — Francis West, CEO, WESTTEK
A growing number of savvy MSPs are turning to automation (i.e., using tech tools to tackle work traditionally performed by humans) to more efficiently address RMM and PSA demands. But even less-techie MSP staffers can leverage easy-to-use tools from Continuum, a ConnectWise company to automate many day-to-day tasks, maximizing their impact on overall growth.
To properly leverage automation and meet your objectives, you need a tech stack that aligns with your team’s skill set. For many MSPs, that means embracing accessible automation, a growing trend that provides the flexibility to reorganize a team or hiring strategy without being confined to an overcomplicated tool or one with unique programming language.
Outsourcing is a twin strategy of automation; that’s why experts recommend MSPs implement them in tandem. In general, business outsourcing includes a range of activities, from accounting to sales and marketing, that typically fall outside an MSP’s core competency. However, for early-stage MSPs, there’s a counterintuitive but compelling business case to be made for outsourcing technical services including:
- Network Operations Center (NOC): A facility where system admins supervise, monitor and maintain IT networks and systems.
- Help Desk: A place IT users contact IT, experts, to resolve problems.
- Security Operations Center (SOC): A site where information security pros monitor, analyze and protect against cyberattacks.
Outsourcing to white-label NOC, SOC or help desk services such as Continuum Assist makes increasing business sense for MSPs who face rising costs to recruit, train and retain skilled IT talent — individuals who are in high demand and short supply. At the early stage, MSPs tend to begin outsourcing to a third-party NOC. In later stages, MSPs often double down on this strategy to maximize profitability.
- Instant access to a team of certified techs for day-to-day tasks
- Extend support hours to 24/7 availability without adding staff or shifts
- Reallocate in-house engineers to higher revenue projects
- Improve incident response rates with round-the-clock support
- Avoid or delay pricey local tech hires while tapping hard-to-find skill sets
- Retain in-house techs who don’t want to work weekends
- Invest savings into business development roles or activities
- Add staff to support clients without damaging gross margins
Continuum, a ConnectWise company enabled WESSTEK to ramp up a 24/7 IT management and support organization with the founders as its sole employees. West said that between Continuum’s RMM and NOC combined, the MSP saved a minimum of £100,000 annually (at the time, roughly $150,000 U.S.) in personnel costs in its formative years.
Controlling labor costs aren’t the only boon of outsourcing; it also adds expertise and services that can help you sell more. The ability to advertise 24/7 NOC and help desk support was key to selecting the Continuum Platform for Josh Weiss, CEO of the fast-growing MSP L.A. Creative Technologies.
“I chose Continuum because they have people built into the model. I could sell 24/7 help desk running the company by myself. At that time, with 30-50 clients, I needed to have someone to help answer the phone.” — Josh Weiss, Founder and CIO, L.A. Creative Technologies
Doing More with Less
Ultimately, automation and outsourcing give you elasticity such that your growth is no longer constrained by the size of your staff, but only by how well you sell.
Indeed, trying to keep pace with mounting client work by adding full-time staff members puts continual pressure on margins. What’s more, if revenue growth fails to materialize and you’re unable to offset the cost of a new hire, reductions in gross margin persist. In contrast, automation and outsourcing enable you to add costs in proportion to revenue growth, which preserves your margin and reduces risk.
Automation and outsourcing also dramatically change the posture of the business from being reactive to being proactive, which leads to greater efficiencies and cost savings. They can potentially collapse the timeframe spent in the early growth stage, allowing you to explore best practices of process-based optimization characteristic of MSPs that have grown and scaled, and are now focusing on maximizing profitability — topics we’ll discuss in Chapter 2: Maximizing Profitability.
Pairing Continuum’s RMM and NOC created efficiencies that enabled Ratcliff IT to elevate its service levels from the get-go by freeing up time for more consultative engagements.
“[With RMM and NOC] we could be there to build relationships with the client. We had the time with very few staff to deal with things that mattered to them. We could be more consultative, we could be more present. We literally had more time available to talk to or see them.” — James Ratcliff, founder and managing partner, Ratcliff IT
Automation and outsourcing allow you to shift focus to enabling clients to leverage technology in more impactful ways, which in turn can lead to project work, higher retention and new referrals that fuel growth in later stages — topics we’ll discuss in Chapter 3: Protecting Revenue.
Best-in-class MSPs start thinking about how to run their businesses (instead of their businesses running them) by studying and implementing best practices early on that can scale as they grow and provide a strong foundation for success at later stages.
“I’m really into hammering things down. I just hired a dedicated tech and a virtual assistant — doubling my employee base — and then I’m going through [processes] like crazy and building indexes and building documentation. I’m trying to be a very mature small business.” — Josh Weiss, Founder and CIO, L.A. Creative Technologies
Stay tuned for more practical advice from our expert MSP executive panel in our next chapter, where we focus on helping you increase your margins, improve processes and take your business to the next level.