In the Lightboard Video below, Eran Farajun, Executive Vice President at Asigra, and I discuss the business of being a managed service provider (MSP). In the video, we discuss how MSPs can build value into their businesses by investing in being a technology provider instead of merely an agent of technology. In the process of building value, the MSP also has to attract customers, so the MSP must provide what their customers want.
What Do IT Professionals Need from a Service Provider?
IT professionals and the organizations they work for, are typically looking for service providers to offload tasks they either don’t have experience in managing or don’t have the interest in managing. In other words, they want their IT team focused on projects and tasks that more directly impact the organization’s value.
MSPs need to provide the services that these organizations no longer have the time or interest in providing themselves. At the same time, they want to do more than provide the service, they need to provide the service with higher quality and more cost-effectively than the organization can itself.
Providing a Better Service, Not Just the Service
MSPs, generally, face two options when it comes to providing these services to their customers. The first option is to be an agent. With this option, the MSP is essentially a reseller of another provider’s service. There are times when this option makes sense, even for the largest of providers. For example, few providers are going to stand up a service that can be a viable replacement for Office 365 or G-Suite. MSPs should resell services like Office 365, plus there are plenty of professional consulting opportunities for MSPs that resell Office 365.
Other more core services like monitoring, VOIP, authentication, and backup, are ideal for MSPs to develop themselves instead of reselling someone else’s. Developing the service internally typically means partnering with a software provider and combining their solution with the necessary infrastructure to support it. The goal is to make the service as uniquely the MSP’s as possible so that the MSP can develop unique intellectual property around providing, maintaining and optimizing the function.
A key aspect is finding the right software provider for each service that the MSP wants to represent. That software provider should not host the solution but rather deliver it to the MSP to run within the MSP’s infrastructure. The software provider also should not require the MSP to share customer lists.
Isn’t Infrastructure Hard?
A common question from MSPs considering evolving from a service reseller to a service provider is the investment cost in the infrastructure. After all the end-user organization wants out of the infrastructure business for a reason. Indeed, there is an upfront cost that the MSP needs to consider, but those start-up costs are nowhere near as expensive as they once were. Additionally, in some cases, the MSP can get started with the same operating expenses (OPEX) model as they are providing to their customers. Using an OPEX model enables the MSP to pay for the service at the same pace as they are adding customers and in the event of a downturn, they can also scale down that infrastructure service.
Of course, there is also, some professional services investment required to install and support the services that the MSP provides. These investments, however, should be no more costly than the investments that the MSP is already making.
How Can MSPs Do “IT” Better?
Once the MSP has access to the infrastructure and the service is ready for sale, how can the MSP provide the service better than how the end-user organization used to provide it, for itself? Most MSPs know that the difference between successful customer engagement and an unsuccessful one is the quality of the equipment and the quality of the installation. By owning the infrastructure, the MSP controls all of these variables, plus the MSP is focused on just a few services, day-in and day-out so the MSP’s processes are more efficient. Add to the focus, the experience of providing that service year after year, and it becomes evident that the MSP can provide these services to the end-user organization better than it can provide for itself.
MSPs will typically have a blend of services. For some of these services, the MSP will be an agent for them and resell them. These services add top-line revenue and some profit, but they don’t provide intrinsic value. To build value into the business, the MSP needs to invest in the control required to be an actual provider of some services. It is these services that drive higher margins, give them an exclusive customer list, and make the MSP ”stickier” which is a combination that leads to high valuation if and when they MSP is ultimately sold.