MSP or bust: Climbing aboard the managed services bandwagon

If you’re hoping to be an early adopter of the managed services delivery model sorry, that train left the station several years ago. But as the break-fix model of IT service delivery becomes increasingly extinct and small and medium-sized businesses become ever more reliant on others for their IT services, there’s still time for those partners that haven’t made the transition to start bringing managed services into their business.

And there are options for partners that don’t want to dive full-scale into becoming a managed service provider (MSP), but want to have options to present clients that express an interest in a managed delivery model.

Why managed services?

Possibly the biggest attraction for many partners that become MSPs is the shiny lure of monthly recurring revenue; that nirvana of stable, relatively predictable revenue coming in every month.

“That’s a really good safety-net to have,” says MSP consultant Stuart Crawford.

“They know before the month starts they’ll make payroll if they do it right. Having that sustainable monthly recurring revenue is absolutely the reason most get into managed services.”

It’s about more than just recurring revenue though says James Alexander, senior vice-president with the London, Ont.-based Info-Tech Research Group.

“It gives you a better ability to do two things: make sure your customer environment is up and running 24/7, and use what you learn being an MSP to improve their infrastructure, end-user support and processes,” said Alexander.

With the constant visibility an MSP has into a client business it can get to the point where they can predict failure before it occurs and recommend remedial action. And that remedial action, notes Alexander, often involves selling them something. It’s a chance to go deeper with clients.

For Brampton, Ont.-based IT Weapons, a past winner of CDN’s Channel Elite Award for Best Managed Services Solution, becoming an MSP was about going deeper with clients. As consultants, they would regularly design and build IT infrastructures for their clients. When clients would ask for help managing that infrastructure, they’d have to send them elsewhere.

Becoming an MSP to complement their consulting practice changed that says Jeremy MacBean, director of business development with IT Weapons.

“We were doing cloud computing back in 2004 when we called it shared services,” says MacBean. “We partnered with a third party data centre host, leased rack space, and took it over with our own servers, storage and networking equipment. Today we have a 17-person staff dedicated to managed service monitoring.”

Toronto’s Bay Street IT Solutions came into managed services through a more traditional route says president and CEO James Evershed. Five-years ago they were the classic hardware reseller, but it was clear a shift was coming.

“My eyes opened to the fact the VAR business by itself was going to die very quickly,” said Evershed. “I decided I needed to have a cloud offering, some managed services and 3rd party IT solutions. In the SMB, the lonely IT manager is fading away. We’ve gone into many companies and replaced that person, hosting their solutions and applications within our data centre.”

With the MSP model fairly mature at this point, it doesn’t make much sense for most partners entering the space to undertake the massive investment in infrastructure and process development to build their own data centre, according to InfoTech’s Alexander. Most partners probably don’t have the capital, and there’s also not much need to reinvent the wheel.

One model is to purchase some software tools, create some processes and use someone else’s data centre. There’s no shortage of vendors and hosting companies interested in helping partners do that, with many companies looking to make their own investments in data centre infrastructure pay off.

“Virtually all the manufacturers have an unfettered interest in helping you become an MSP, and they’re offering training, programs and incentives to help you do that,” says Alexander.

The second option would be to partner with a company such as Ottawa’s N-able Technologies, an MSP automation platform vendor that can set this all up for you and allow you to white box it, so as far as your client is concerned it’s just you delivering the service.

“Then you don’t need to worry about a data centre or infrastructure, and you can use the very sound intellectual property and processes they’ve developed, plus add your own last mile services,” says Alexander. “If I was a small-sized integrator that recognized the value of managed services I’d look at that as a model.”

Crawford agrees that, were he starting a managed services business today, he’d start by outsourcing the help desk, noting there’s a number of strong help desk support firms that can provide level one, two and even three services on an as-needed basis. Monitoring is another service that can be easily outsourced, and provided through white label relationships to your clients.

“A company can start today with very little capital injection, and if they excel in service and meet client needs they can be profitable much faster than in the old days of managed services,” says Crawford.While IT Weapons choose to build the capacity themselves, MacBean says selective outsourcing makes sense for many partners. For example, offshoring overnight helpdesk support so you don’t need to pay local staff to work the nightshift.For Bay Street, building the capacity in-house was a major investment but it was worth it to have full ownership of the customer relationship.

“I’m an old-time VAR guy; you never give your customers away to anybody,” says Evershed. “They can have the best of intentions, and then two years down the road you start hearing ‘they want to talk to us, they love us, it’s really us doing all the work.’”

Alexander said that’s a common reaction, and many VARs have had that experience of being disintermediated from an account by a vendor or upstream partner. But he says partners need to create their own stickiness by wrapping their suite of services around what the third-party is providing.

“Your success in doing that is what’s going to keep you in the account,” says Alexander.

“You can also be taken out of the account by a competitor with a better suite of services. Partners need to continue to be intimate. The minute they stop doing that, they’re going to lose the customer.”

However an IT service is delivered, the keys to success haven’t changed since the mainframe days, says Crawford: you’ve got to know your customer’s business better than anyone else, and help it thrive.“The companies that do well understand the needs of their client, and how technology can best enable their business to be more efficient and profitable, increasing workflow and collaboration and meeting business goals,” says Crawford. “Focus on technology over business and you’ll struggle.”

As in other areas of the channel, vertical specialization is also important in the MSP space. Crawford recommends becoming specialists in two or three verticals, such as legal or oil and gas. Then, you don’t need to compete with the generalists.

When you’re staring-out, Alexander recommends looking at the profile of your customer base, because that’s where you’ll get your early adopters, and make sure they’re right for this kind of offering. How critical is their IT infrastructure to their business, what are their hours of operation, what’s their risk tolerance profile, and are they open to the notion of an external organization providing managed services?

“If it doesn’t fit, it probably doesn’t make much sense for you to get into it,” says Alexander.

Don’t go too fast is the advice from Bay Street. Start off with one or two customers, and build up the team so you have the right people that know the business before you start ramping-up with more customers. Make sure your ticketing, monitoring and reporting systems are all working as they should.

“When you take over someone’s IT and servers you inherit every other problem with IT at that company. If someone’s e-mail didn’t work before, you’re now responsible for that,” says Evershed. “You become part of their business.”

Compensation models are also often a challenge for new MSPs, with a recurring revenue model replacing the usual one-time cash injection of a traditional sale. Many MSPs adopt different approaches for keeping sales staff motivated to keep prospecting for new clients.

For example, at Bay Street, there’s a signing bonus for new deals to complement the recurring income from existing accounts.

“As far as I’m concerned there’s a land rush out there for this kind of business,” says Evershed.Crawford recommends also building client satisfaction measurement into the compensation models for all employees.

That’s the case at IT Weapons, but MacBean says they made the decision early to not compensate their sales staff on a commission sales model. It’s not a common approach, but he says it’s the culture they wanted to build.Instead, they have a ratio of four technical to every one non-technical staff in the company, and most of their sales are actually led by people from the technical side.

“We tend not to focus on the traditional hunter/gatherer approach to selling,” says MacBean. “It’s hard to really trust someone’s recommendation if you know that deal going through is what’s going to put food on their kids’ plates.”

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Jeff Jedras
Jeff Jedras
A veteran technology and business journalist, Jeff Jedras began his career in technology journalism in the late 1990s, covering the booming (and later busting) Ottawa technology sector for Silicon Valley North and the Ottawa Business Journal, as well as everything from municipal politics to real estate. He later covered the technology scene in Vancouver before joining IT World Canada in Toronto in 2005, covering enterprise IT for ComputerWorld Canada. He would go on to cover the channel as an assistant editor with CDN. His writing has appeared in the Vancouver Sun, the Ottawa Citizen and a wide range of industry trade publications.

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