MSP Business Success is Hard
Business ownership is hard. Achieving MSP Business Success is REALLY hard. I’ve started, operated and owned 4 businesses. One was my I.T. managed services provider company, which I started when I was 21 years old, back in 2005.
That business started as a part-time gig on the nights and weekends. I did “break/fix” support for college professors, doctors, and a few small businesses. It was a true “side-hustle” as I worked at a local community college to pay for night school.
It grew to a multi-million, award-winning Managed Services Provider over the years. I sold it in 2021.
The second company was a commercial real-estate holding company. A common tax play is to sweep funds from an operating company (The IT business) via rent. You end up with a better tax situation via “rental” income on the federal side.
NOTE: I am not a CPA – talk to one before you try this.
I sold that company’s holdings in 2022.
The third and fourth businesses exist today. The third is Richardson & Richardson, which I own with my wife and business partner. You might know her – Carrie is a force of nature in the IT Channel.
As mentioned I sold my MSP and RE companies. I also assisted Carrie as a CEO for hire through the sale of her telemarketing agency. That company, Managed Sales Pros, sold in 2022 as well.
I’ve bought a couple of businesses as well. In 2017, Doberman (My old IT Shop), purchased a distressed, sub $1M ARR two person IT shop. In 2022, Carrie and I purchased a small distressed marketing firm.
Throughout those experiences, I’ve made enough mistakes to retire off of.
I have 7 tips for MSP business success that have proven useful time and again, and wanted to share them here.
7 Tips for MSP Business Success
- Process
- Finance
- Sales
- Marketing
- Strategy
- Runway
- Pricing
Let’s explore each one.
Process:
Across all my endeavors, lack of process was far and away the number one issue. It becomes a problem when you try to offload functions to other people. Hiring that first tech will be painful if you don’t document how to work tickets and talk to customers. Likewise if you try to outsource lead generation to a provider it’ll fail without process.
Documenting the key business functions is a critical first step. If you need something done a certain way – make a procedure.
Extra benefit around this – its easier to hold yourself accountable if you write down what you are going to do.
Finance:
Cash is king. I don’t say that tongue in cheek either. Understanding your three key reports (P&L, Balance Sheet, and Cashflow) is critical.
Get an understanding of what levers you can pull to impact key parts of your reports. Things like Margin, EBITDA, COGS, and Expenses need tight management.
Take a “profit-first” mentality – you can’t grow your way to profitability. You must have a profitable model from your first dollar.
Most MSPs are “boot-strapped” – you’re not taking outside funding to grow the business. You want that profit building from “day one” to build your war chest as well as an insurance policy.
You cannot predict when you will need to sell your company. Circumstances outside of your control can force your hand – its better to have your house in order. Profit helps “everyday” situations like client loss or employee turnover be manageable.
Manage your debt load and equity to improve valuation.
Sales:
MSP sales are “complex” in nature. When you sell an intangible like I.T. services, people are wary. You can’t touch or taste or see “good I.T.” – you have to experience it over time.
- Figure out your sales process that you will use for new opportunities.
- Recognize that handling an existing customer will be different than a new logo. It’s always easier to “sell again” than to sell the first deal.
- Consider land & expand plays – its easier to sell a $5000 assessment and I.T. roadmap versus a $72K/yr, 3-year I.T. contract. When someone buys a small engagement first, you can use that engagement to build trust. That trust leads to future sales.
One key lesson: Discovery is the most important part of the equation. Selling I.T. is gap analysis and psychology – master those and you’re doing better than 90% of the competition.
Marketing:
Marketing is all about consistency and luck. By doing the right actions consistently, you create your own luck. Make a simple strategy that you can execute against every week.
I can’t stress enough dedicating time to brand awareness for your company. You have to pass the “smell test” for companies who are considering a change. People who are hiring an MSP don’t understand most of the concepts you’re going to present. They’re either:
- I.T. directors at mid-sized companies who are protective of their jobs and turf.
- Small business owners who don’t understand technology at all.
- Managers of SMBs who juggle 15 balls at a time and need I.T. to work.
Create profiles on each of these buyers and learn how to speak to them about what is important to them. Structuring your marketing around themes can make it easier for you to create content consistently.
Strategy:
Start with perspective & reflection. Why do you want to have an MSP? A list of those reasons, and why they’re important to you as a human is a good place to sit for a while.
- What’s the reason your company should exist? That’s a mission statement.
- Why does that mission matter to your customers? That’s the beginning of your value proposition.
- Why does your services matter to your customer’s customers? That’s a wedge topic during multi-bid scenarios.
- Why should I listen to you versus someone else? That’s differentiation.
Figure out your vision and company culture. Why would someone want to join your team? Where are you going, and what impact will achieving it have? If you’re going to make an investment in your MSP, strategy should be your first consideration.
Runway
When it comes to living, it’s easier to start business when you’re healthy financially. This most recent go around I had 2 years of living expenses in the bank. I seeded my company with 6 figures of operating capital.
Why?
I realized I wasn’t going to be making money for a while. I have a complex sales cycle as well, and a brand new sales process. A long sales cycle with a lot of “misses” are going to be the norm for me.
That’s what happens to MSPs as well – you’ll have a lot of missed at bats until you get dialed in. Removing the financial pressure of “I need to pay my bills” makes that easier to cope with.
Pricing
Last, but not least: Pricing models are bloody well difficult. Aim for a service gross margin (SGM) of 55-60%, with a basement of 45% during your cash flow building phase.
Anything less, and you’ll lose your shirt, along with your house.
Final Thoughts on Achieving Success in your MSP
I hope this article provides value.
There’s no “silver bullet” on any of these.
What works for one MSP might not work for you. Talk to your peers, listen to experts, consume knowledge. But take it all with a grain or two of salt. Anyone who preaches they know “the way” is selling you something. MSP business success takes years of building and iterating – it won’t happen overnight.
If you’re looking for help – my calendar is available here.
If you found value in this article – I have a newsletter where I share my thoughts. You can sign up here.
