Top Three Best Practices for MSPs

The managed services provider (MSP) market is growing. Revenues have been estimated to exceed $193 billion in 2019—a CAGR of 12.5%. The percentage of companies making use of MSPs is growing with the Henson Group adding 50% more clients last year alone.

Growth for individual MSPs varies considerably. A significant portion of MSPs have seen their businesses grow by 20% or more annually. About half, however, are only growing at about 10% or less.

Just as importantly, operating margins also vary considerably among MSPs. High-growth MSPs often find that their profits don’t keep pace with their revenue, because they are not achieving adequate efficiencies of scale. Others are growing their top lines more slowly but are achieving much better bottom-line results.

As the manager of all MSP services at Henson Group, I share my first-hand experience and top three best practices for building and growing a highly successful MSP business and out-perform the numerous competitors this growing market continues to attract.

MSP BEST PRACTICE #1: Define and Document Repeatable Processes

Technical competency is necessary for MSP success, but it’s not sufficient. To profitably deliver economically valuable technical services at scale, MSPs must also make that delivery consistently repeatable.

This repeatability can present a challenge to MSP leaders, who are often technical practitioners themselves—and who have thus developed their own processes and methods that are as idiosyncratic as they are effective. These leaders thus tend to expect their staff to apply similar competency and creativity to their jobs, in the hope that this competency and creativity will make the business a success.

Unfortunately, if everybody does everything differently, some of them will do it wrong. Some of them will also take more time to do it, which invalidates pricing. And some of them will do it right—and quickly—but will do it in a way that confuses the customer.

Inadequately defined and documented processes also make MSPs vulnerable to staff turnover, since a new hire can’t quickly replicate the behavior of someone who just left.

MSP leaders therefore need to build repeatability into all aspects of the business, including both technical operations and customer engagement.

More specifically MSPs must:

•                   Rigorously document all repeated business processes with flowcharts that include actions, decision-points, scripts, etc.

•                   Build a work culture that promotes and rewards process discipline, while also empowering people to deviate from process when circumstances make it appropriate to do so.

•                   Implement metrics (task time, response time, number of customer contacts, etc.) to monitor process performance and consistency.

•                   Institutionalize process improvements by capturing, codifying, and rewarding them.

The third bullet above—process measurement—can be particularly problematic for MSP leaders who like to get things done without spending too much time considering how they get done. But investment in process metrics is essential to scale MSP operations while maintaining quality and profitability, even as different people perform different tasks.

MSP leaders should also consider process outcomes above and beyond efficiency and immediate process outcomes. ITIL processes, for example, may add steps to problem resolution in the short term—but they have a broader impact on quality and customer satisfaction in the long term. So process discipline isn’t just about getting things done quickly and effectively. It’s also about aligning actions with an MSP’s “Big Picture” business strategy.

When it comes to an MSPs desire to grow, establishing habitual processes and procedures is crucial. Neglecting this first step makes the following practices difficult to achieve and maintain.

MSP BEST PRACTICE #2: Define the Mission

It takes a lot of work to be a successful MSP. You have to put together great technology solutions, win over customers who can easily spend their money elsewhere, diligently deliver the responsive service it takes to keep those customers once you get them, continuously coach a growing team of diverse personalities, and rigorously control costs.

All that daily “blocking and tackling” can get to you, even if you’re making money— because, face it, there’s lots of ways to make money in IT. So you may need more than just a profit motive to lead your company to MSP excellence.

You also need a mission.

Market-leading MSPs define their mission in various ways. Some define it as bringing technology excellence to their local market. Others define their mission as empowering a particular vertical to reap the benefits of a particular set of technologies.

However they define it, high-performance MSPs almost universally connect their business model to a mission or vision. By doing so, they reap a variety of benefits:

Mission elevates brand. Any MSP can walk into a customer’s office and offer to do a decent job at a reasonable price. Not every MSP can offer partnership with a technology service provider on a mission—especially if that mission aligns well with the prospect’s own business objectives.

Mission energizes culture. People perform better when they’re working for more than just a paycheck. This is especially true of technically skilled Millennials, who have lots of employment options. Mission can contribute significantly to the kind of workplace culture required to attract, motivate, and retain these vital team members.

Mission drives direction. Without a mission, MSP leaders can struggle to decide where to expand their business next. Do you try to guess what the Next Big Thing will be? Do you just passively allow each successive customer to randomly lead the business this way and that? Mission helps MSPs avoid these common pitfalls so they stay on a clear growth track.

The bottom line: If you haven’t yet articulated a clear mission for your MSP practice, do so. And if you think you kinda sorta know what it is, clarify it and make it more central to everything you do and communicate. That’s what makes leaders leaders— and it’s one of the most important ingredients in their recipe for business success.

MSP BEST PRACTICE #3: Talent is King

Every service business is a people business. So when MSPs stop growing, it is more often than not because they don’t have enough of the right people to deliver more services to more customers.

Most MSP leaders recognize this intuitively. But they nonetheless struggle to develop the kind of talent pipeline necessary to keep expanding their business. Many go as far as to blame the labor market, rather than any shortcomings in their own talent management strategy.

Successful MSPs, in stark contrast, take responsibility for building the kind of team it takes to keep getting better and bigger. These MSPs focus on the three fundamentals of HR:

Recruit for Potential

Immediate pressures often drive MSP leaders to make hiring decisions based almost exclusively on present technical skills. This is a mistake. Skills can be learned. So while new hires should be able to demonstrate proficiency in their current areas of interest, their long-term value to the business has more to do with their ability to grow professionally over time. New hires should therefore also be selected based on their ability to learn new skills as required and—perhaps even more importantly—understand the MSP business model and the customer demands that drive it. MSPs must also recognize that they are competing for talent—and that attracting talent requires more than just competitive compensation. High-potential recruits also need to be offered an opportunity to grow and be part of an attractive workplace. So MSP leaders need to think about what they can do to make it more exciting for an IT professional to become part of the team.

Nurture and Motivate

Building a great team requires more than just hiring great people. In fact, hiring is just the start. Talent has to be developed and nurtured over time, too. And that takes more than just a pat on the back and the occasional performance bonus. That’s why MSP leaders need to craft a complete strategy for talent development that includes continuing education and incentives for taking on additional responsibilities. MSP leaders may also want to consider job rotations that expose staff to alternative career paths in technical operations, sales, marketing, and business operations.

Long-term Retention

MSP leaders that invest in the education and development of their staff often bemoan the fact that other companies can wind up benefitting from those investments. But people will inevitably leave a company if they don’t feel valued and aren’t incentivized to stay. Customers notice this turnover—and are usually not that happy about it. MSPs should therefore take reasonable steps to keep their best people on board. MSP leaders should also recognize that when they hire someone new, they’re probably benefitting from the investment that person’s previous employer made in someone who ultimately left their company. In a free labor market, no MSP’s talent pipeline is an entirely closed system—so everyone benefits when employers invest in their people.

Conclusion

Starting, building, growing and maintaining a successful MSP is difficult but focusing on these three best practices above will establish a solid foundation. For more information, questions, or comments, please send me a direct message in LinkedIn.