Carrie Simpson, CEO of Managed Sales Pros

Making the Leap from Consultancy to MSP

admin — Thu, 05 Aug 2021 18:06:09 +0000

Making the Leap from Consultancy to MSP admin Thu, 08/05/2021 - 13:06 MSP Carrie Simpson, CEO of Managed Sales Pros

In the world of IT service providers, there are two business models to choose from: the break-fix, charge-by-the-hour IT consultancy, and the per-seat managed service provider (MSP).

Many consultancies see the MSP model as a natural next step as they move from a small team to a more mature company. It’s true that the MSP model is more profitable in many cases, but for consultancies looking to take the leap, where do they get started? And how do they know if it’s even the right move?

The reality is that the MSP model is completely different from that of a consultancy, and there are a number of considerations you’ll have to mull over before you can be sure your business is ready.

Don’t believe me? Try this: go to a Reddit forum for MSPs and look for the simple, Day One questions people are asking about running an MSP. You’ll see a lot of posts from people trying to start their own MSP who are completely stumbling through the transition. They had the enthusiasm to succeed, but they didn’t do enough planning and preparation to actually hit the ground running.

The good news is, you can learn from their mistakes.

The main things you’ll need to transition to an MSP are a tolerance for uncertainty and a structured plan for how you’ll grow. That said, there are also a number of concrete steps you can take to get your business to where it needs to be to flourish as an MSP.

Step one: Do the numbers

For many consultancies, moving to an MSP model feels inevitable. It’s just what you do when you reach a certain size, with a certain number of clients. But just because you could do something doesn’t mean you necessarily should. There’s no reason to move to an MSP model if it’s not going to be profitable for your business.

You owe it to yourself to do a deep dive into financial analysis well before you make the call to change your entire offering. There are a number of drastic differences between consultancies and MSPs: consultancies tend to run on a break-fix, hourly rate model, while MSPs typically charge a fixed monthly rate per seat.

It’s your job to figure out ahead of time how that monthly price will break down: what’s included, and what’s your margin on top of that? You can’t just pull a number out of thin air.

I recommend creating a matrix of all your current clients, with a breakdown of what they buy, how often they need support, and whether they’re a profitable client for you or not. You don’t have to do this from scratch, either. There are services like MSP CFO that will help you determine profitability per client by showing you the margin on each of them.

Keep in mind that best-in-class margins (or EBITDA) in the MSP world are around 18%. Operationally mature companies usually have an EBITDA of between 20 and 25%. MSPs that are failing have an EBITDA of less than 10%.

Take the time to project your EBITDA for each client under your proposed business model. If it makes sense to move to an MSP, do it. If it doesn’t, stay where you are.

Step two: Outline your offering

Next, you’ll need to solidify your offering as an MSP. As we know, most MSPs charge their clients a monthly rate for their services. Now you need to figure out what will be included in that price.

Here’s where you work out the basics. For example, are you bundling security into your product offering? If so, is your business competent enough to do that well? Which vendors are you going to work with? Do you have the resources to offer top-tier services, like IT roadmapping?

Many consultancies are used to selling boxes and hours. Pivoting to the more nebulous offering of high-level business concepts can be difficult, and it can be tricky to know how to communicate that value. It’s like selling insurance; it’s something ephemeral that you can’t look at or touch. With MSPs, what you’re really selling is the value of not needing to go through 18 steps in order to get tech support.

Most MSPs take a tiered approach to their service offering, which is something you might want to consider. A three-tiered offering will look something like this:

Tier one: Bare bones

This tier contains the “basics” for price-conscious clients who don’t need much. In other words, all the IT essentials that every business needs (basic hardware, and software like email).

Tier two: Best practices

This tier typically includes all the necessary licensing that a business needs, but doesn’t include the full suite of support that makes it a fully managed service.

Tier three: Expert support

This tier contains everything: licensing, security, and roadmapping for the years ahead. It’s the tier for businesses who don’t want to have to worry about their IT, and who see it as an investment that will enable their growth as a company.

Step three: Step up your staffing

Part of the challenge of offering managed services is being able to balance your workload with your overhead. If you have too many technicians, your profit margins drop. Not enough technicians, and your service quality dips. There’s a constant seesaw of new business to new staff that you have to be mindful of all the time.

At the end of the day, it comes down to being realistic about your planning. If you bring on a 50-seat client, you’d better have the resources to support the amount of work that will bring.

I talk to so many MSPs who hire their first sales representative in June with the intent of tripling their business by next year. Let’s think about what that means. Most MSP sales cycles mean that very few contracts will be signed until the end of the year. These businesses hired someone and gave them a target, but that target was completely unreasonable. Now they’re going to have a sales rep who’s disgruntled and burnt out before the business has brought on even one new client.

It’s natural to be aggressive with your growth goals, but you have to be realistic about what you can actually support.

Step four: Understand your roadblocks

Once you’ve set up and staffed your business to scale, your next hurdle will be doing the actual work of growing your company.

Of the roughly 50,000 MSPs operating today, only 6,000 of them make over $2 million a year in revenue. This figure seems to be the tipping point; if you can make it happen, you can do pretty much anything.

Of the MSPs I’ve worked with, growing a business from $1 million to $2 million in annual revenue seems to be the most difficult leap to make. Most will peter out at the $500,000 mark. Those that do make their way to $1 million in revenue will find that this is where the rubber meets the road. Businesses have to be focused, organized, structured, and process-driven to grow past this point.

One of the major hurdles that impedes this growth is the staffing issue I just mentioned. If you fail to balance client attrition and onboarding with staffing, much of your business will be stuck managing churn. It’s important to continue to monitor where your business is at, whether you’re staffed to grow sustainably, and whether the clients you’re onboarding are ones that you can support with quality service well into the future.

Remember, you have a network to rely on

There are a number of things you’ll need to plan for before you make the transition to building an MSP, but don’t fall into the trap of thinking you need to figure this out alone. There are tens of thousands of MSPs operating today, and many of them are doing best-in-class work that you can learn a lot from.

Look at the companies you respect in your market, and reach out to them for advice. Most of your peers in the IT space will be happy to share knowledge with you and pass along their best practices. To help you get started, read and subscribe to “Rockstars of MSP”! It spotlights stories from MSP leaders who talk about how they built their businesses.

With proper planning, packaging, and staffing, as well as a realistic set of expectations, you can make the leap from consultancy to MSP.

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Editor's note: if you ever run into trouble, let us know. We offer a lot of great external resources to direct you to, like Carrie (the author of this blog post and CEO of Managed Sales Pros). She has built an entire business around helping MSP founders who have bitten off more than they can chew!

Also recommended for you:

Rockstars of MSP

The Land and Expand Playbook: MSP Pipeline Growth Starts With Saying Yes

The Future of MSP

Fix your sales-service handoff to enhance the customer experience

admin — Fri, 25 Jun 2021 17:25:45 +0000

Fix your sales-service handoff to enhance the customer experience admin Fri, 06/25/2021 - 12:25 MSP Carrie Simpson, CEO of Managed Sales Pros

There’s no doubt about it: we’ve reached the age of automation, and today’s MSPs are using it to streamline their services in a number of ways. Whether it’s using email templates and workflow automation in CRM (customer relationship management) systems to eliminate hours of repetitive work from the sales process, or pushing customers to self-service portals for logging tickets, automation can allow you to eliminate the repetitive and redundant parts of a job, which in turn can improve employee satisfaction and increase productivity.

Automation can also help you find cost savings in a number of areas of your business. Find enough efficiencies, and you might be able to lower your headcount or retrain your employees for new roles.

Given these advantages, it can be tempting to automate everything. If one automated process is good, two will be better, right?

Not always.

Here’s the thing: automation misfires. Systems break. Employees make mistakes. Software gets buggy.

Automation will never be able to override human error. If your process now allows you to do more things faster, it stands to reason that a mistake will impact your business on a much larger scale. The thing that you praised when it allowed you to contact 500 prospects in two minutes? You will be cursing it when all 500 of those prospects receive the wrong email. Let’s take a look at the pluses—and pitfalls—of using automation to streamline your sales to service handoff.

Where automation works

Look, I am by no means saying that automation is a bad thing. Automating certain tasks can really, truly make a difference in your day-to-day life. When people ask me what should be automated, the answer is easy: any task that makes people bored and/or complacent.

Many MSPs use an automated quoting tool that integrates with their Professional Services Automation (PSA) platform. Automated quoting is great, because it really does allow your salespeople to get out of the drudgery of clicking over and over, and streamlines something laborious that may not always be worth the amount of work it demands (a prospect is not yet a client, after all).

Likewise, setting up a sales nurture email campaign can be a great way to warm up colder prospects and coax them back into the sales funnel. If a prospect is too early on in their buying journey, or if they’re still working out what exactly they need in order to solve their problems, keeping them in the loop with an automated email cadence isn’t a bad idea.

… and where it doesn’t

There are some major caveats to the examples listed above, however. Let’s look at the example of using quoting software first. Let’s say you use quoting software to fire off a quote to a prospect, and that prospect wants to go ahead and sign a contract. The contract gets sent off and e-signed, and the prospect signs on for an onboarding date. You got a new client and no one had to lift a finger, right?

But now let’s say five other prospects just went through the same process, and they’ve all been promised the same onboarding date. Here’s where reality ruins everything. When the entire process from quoting to signing on are automated, there are no checks and balances in place.

There needs to be a place between service and sales where a human can come in and flag something. If there’s no capacity to onboard a client within the timeframe that was promised, that needs to be caught before the papers are signed. If not, you’re off to a not-great start with a new client when you have to go back on your word right away.

Now, let’s look at the example of using an automated sales nurture email flow. As I mentioned, they’re a great tool to use on colder prospects. And that’s it. Put yourself in the prospect’s shoes: if you just had a great call with a sales rep for an hour, and then an hour later you get an automated email from them, it feels impersonal and doesn’t fit the experience you just had. Automation should be overridden for warm prospects. You owe it to them to give them your full, human attention.

The lesson? Automation works well for many parts of your sales process, but it’s never a blanket solution. There are many points where you can easily differentiate yourself from your competitors by putting on your “white gloves” to treat the prospect with care.

Be aware of your limits

The trick is to find where the limits of automation exist within your business. The larger your company is, the more you can benefit from automation, but also, the more likely you are to experience automation gone awry.

Taking stock of your sales process and flagging all the parts where automation needs to end and a human needs to step in is important. A good rule of thumb is to look for the points in the sales process at which things stop being straightforward. This is often the point at which work is scoped and promises are made.

No client or prospect wants to feel like the work you’re doing with them is mundane, repetitive, or redundant, so you need to be aware of when things could start to tip this way. I’ll never forget one MSP that sent me a proposal with the name of my biggest competitor in all the places where my business’ name should have been. How is a prospect supposed to feel confident that an MSP can provide a unique or special service if they fail to catch something like that?

Quality control is key

One big lesson that seems to be difficult for some MSPs to learn is that automation is never a “set it and forget it” scenario. One MSP I know of changed over to a new PSA system to manage their ticketing process, but failed to realize for three months that the ticketing process wasn’t firing effectively. They lost three clients in a month because of it. This is more of a quality control issue than an automation one. Who was there checking the system to make sure it actually worked?

Let’s use an analogy that’s well-known in the IT world. People buy backup and disaster recovery products that are supposed to automatically check your backups every night. These things often misfire, though, so they’re often checked to make sure things were backed up correctly. The stakes are high, and no MSP wants to be held responsible for losing a client’s data simply because they forgot to check if something was firing properly.

You should approach your automation quality control the same way. You would never not check your backups, so why not apply the same vigilance to your sales and marketing software? Make sure you’re looking at each stage of the process to see where the bugs are, and check in frequently to make sure everything is still working as planned.

A final thought

There’s no doubt that automation can help you get out of the weeds and focus on the parts of your business that need attention. At the end of the day, how much you automate is up to you.

It can help to put on your “customer” hat. As a customer, automation is great when it makes sense. Who doesn’t love using the self-checkout line at their local grocery store? But if you walked into Tiffany’s and they had a self-checkout line, you’d be confused.

If you want your prospects and customers to feel valued, think about where that value shows up in the sales and onboarding process. Then, make a vow to yourself to never automate that part of the process. You owe it to your customers—and your business—to show up where it counts.

Also recommended for you

How to Harness Your Employees to Collect Valuable Customer Data

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6 Red Flags from Your Next Potential Vendor Relationship

The Future of MSP

How to Harness Your Employees to Collect Valuable Customer Data

admin — Thu, 27 May 2021 17:00:34 +0000

How to Harness Your Employees to Collect Valuable Customer Data admin Thu, 05/27/2021 - 12:00 MSP Carrie Simpson, CEO of Managed Sales Pros

Imagine one of your customers is nearing the end of their contract. You check your PSA and decide they’re a good fit for an upsell—decent turnover, growing headcount, stable industry.

Three months out from their renewal date, you call them up and give them your best sales pitch.

And then it all falls apart.

It turns out your customer has been complaining about dropped tickets and slow service for months. They don’t want to talk about a new contract until you’ve fixed all their current problems.

You hang up the phone and click back to your PSA. What just happened? There’s nothing there to even suggest there was a problem with this account to begin with.

The likely cause is that your employees aren’t documenting their work properly. If I’m being honest, I don’t even blame them. PSAs are clunky and everyone develops quick workarounds and shortcuts to speed up their work, especially when business owners haven’t implemented Standard Operating Procedures (SOPs).

But as we’ve just seen, poor documentation wreaks havoc on subsequent resells. Let’s talk about fixing MSP data practices and harnessing your employees to collect valuable customer data.

The problem with data

Before we dive into fixes, let’s hammer out the two distinct challenges MSPs face with customer data: data access and data reliability.

First, data access.

In most cases, day-to-day customer data lives in a PSA like Connectwise, Autotask, and ServiceNow. That’s where you see things like contract details, documentation, projects, and calendars. It’s also where techs’ notes should live. When a tech fixes a ticket or goes on-site, they should document what they did.

While PSAs are great for customer data, they’re woeful for sales. Even so, account managers have to use them because that’s where the customer data is.

In order to sell more effectively, MSPs need to manage data in a way that allows visibility across both PSA and tools that are designed for sales like CRMs. You can integrate the two tools, but it’s often expensive unless there’s a one-click integration. The alternative is to work between the two systems. It’s not ideal, but it’s immediately accessible.

But behind the data access challenge is a more fundamental problem: data reliability. This comes from employees not properly documenting their work. When your data is unreliable, it’s unusable. Say your PSA doesn’t have any ticket notes. Does that mean everything is going well, or that your techs didn’t remember to document their work? You don’t know.

It’s this second problem we’re going to focus on. Because unless your data is reliable, it doesn’t matter whether or not it’s accessible.

Set behavior benchmarks

The goal here is simple: techs should take proper notes when they go on-site. While simple in theory, it’s a problem that all MSPs have to deal with. Techs are busy. They prioritize metrics like time to resolution or average ticket completion time. If they’re rushing from one ticket to the next, proper documentation is one of the first things they’ll cut.

The reason they prioritize speed is that they’re (usually) appraised on speed. If you set an SLA for ticket acknowledgment at 30 minutes, resolution plan at two hours, and resolution at eight hours, they’ll move to hit those targets. Since ticket resolution isn’t contingent on record-keeping, it makes sense to skip over their notes.

Once you know what behavior you want to encourage—record-keeping—you have to work it into your incentivization structure. Companies have adopted strategic platforms like the Entrepreneurial Operating System (EOS) to benchmark the behavior they want and incentivize against it.

Drive consistency

As with all change management, the moment an owner takes their hand off the wheel, progress and standards slip. This is no different. Once you have your revised incentive plan in place, you need to stick to it, come hell or high water.

If you’re fortunate enough to have a superstar tech who consistently closes tickets in one call, you likely will give them a lot of slack—outcome is important. Process is also important, so what do you do when they’re skipping or putting off completing their documentation? It’s tempting to let it slide. After all, they’re your superstar.

When you let their behavior slip, the people around them think, “Oh, it's okay not to take notes.” Then their behavior begins slipping, too. They’re now also skipping taking notes and closing tickets without proper documentation, and they feel justified in doing so. It slowly ripples through your business, and it begins to undo all of the processes you’ve spent years building.

As you see the change unwinding, you might come down hard on your B- and C-players. Ultimately, this just builds resentment across your entire team. Why is the superstar getting away with the things they’re being disciplined for?

Now, you’re back to solving the same problems you experienced early on in your managed services business—and you’re going to have to start over. Retraining people is challenging when they know they can let standards slip. Disciplinary action is not advised when you’ve enforced an uneven or unfair policy. A consistent policy—documented, trained, and acknowledged in writing by your team—is mandatory if you want to provide corrective counselling or build a performance improvement plan.

Identify the behaviors you want to promote. Find a way to incentivize them. Then drive unrelenting consistency.

Find the problem and work backward

Creating reliable data might seem like a thankless task—but it can drive improved sales performance. To understand why, start at the problem and work backward.

Your MSP business isn’t growing? Ask why: you’re not bringing in more revenue.

Why isn’t your revenue growing? You’re not adding enough new opportunities. Dig deeper for an answer: one reason might be you don’t know what’s going on with your current customers.

Why don’t you know what’s going on with your current customers? Your employees aren’t keeping accurate records.

When you’re in the weeds, it’s tough to see the link between accurate record-keeping and increased revenue—but it’s there.

When all of your employees document their work in a standardized format and single platform, you gain a much deeper understanding of both your prospects and your customers. You’ll know what you should offer for upsells and when to push for renewals. You can increase your sales performance without adding sales headcount. With clear visibility into the entire lifecycle of your customers, and clearly defined standard operating procedures enforced consistently across your organization, it won’t be long until your business begins experiencing the best-in-class margins and year over year growth you desire.

The Future of MSP