Resellers New Goldmine - Managed service provider (MSP) business

Traditional IT companies now witnessing a heavy transformation in the way they keep doing their business.  With hardware and software sales increasingly commoditized, Intense competition and diminished profit margins the motivation for building a managed service provider business has never been greater, The ability of the MSP to build a strong relationship with the customer and offer ongoing IT services for a monthly fee is attractive model. The MSP model breeds a degree of stability into the business compared to the VAR model of “one and done” transactions.

But getting from Point A to Point B isn't so easy. I experience this transitioning phase more deeply being part of both type of organization Solution Provider (PC Solutions) and LSP (Comparex /SoftwareOne).   In this blog I try to explain what the risks are and how to make a successful transition to an MSP business model.

As margins for hardware and software continue to fall, many resellers are moving toward providing services to stay profitable. These often include deployment or auditing services, but managed services -- monitoring and remote maintenance -- are an increasingly popular option, especially for value-added resellers (VARs) and LAR. Although there isn't a clear consensus about exactly what an MSP is, MSPs generally monitor and fix clients' IT infrastructure remotely. MSPs offer managed services for a recurring monthly fee. They may also sell hardware that augments their service. MSPs value engineers who can solve problems quickly and efficiently. Customer service is as important to the MSP as technical acumen. The MSP culture is one of teamwork and mentorship.

I have seen many companies operate with a hybrid model, offering reselling or integration services in addition to managed services. With this model, the managed services offerings are essentially another line of business. Although companies often struggle to quantify exactly how much of their revenue comes from managed services, 73% of companies that offer managed services reported that those services were profitable, according to a CompTIA survey. Companies were more likely to report that they made a profit from managed services if 50% of more of their revenues came from that line of business, the report found. So, if you decide to make the transition to an MSP model, dipping your toes into the business is not the approach to take.

Before you start shifting your License business toward an MSP model, it's important to know the market. MSPs generally serve company that have strained IT resources and most of their workloads are on cloud. The MSP's job is to handle day-to-day IT operations, freeing the client's staff to work on new projects instead of putting out fires. Clients often hire MSPs to provide to manage their cloud (O365/Azure/AWS) and hybrid infrastructure.

The biggest factor for clients in picking an MSP was a specific service the MSP offered, according to the CompTIA survey, with 27% of end users citing that as their most important criterion. After that, 23% said they chose an MSP due to an existing relationship they had with the company. Taking on a "trusted advisor" role is a key part of building a managed service provider business, since clients are trusting you with the security and uptime of some of their most vital IT resource.

MSPs bill on a recurring basis, but the specifics are up to you. MSPs usually charge by the month, quarter or year, and many set a flat fee based on what services the client wants and how many devices need to be supported. If you do decide on a flat-fee system, it's important to try to predict how much time and money you'll spend on each client, since extra, nonbillable hours eat away at your profits.

My suggestion is that you should avoid negotiating a customized contract with each client, Although the temptation is there, especially when you're starting out, having to worry about too many different contracts makes building a managed service provider business harder as you try to scale up, he said.

Getting Started

You will not have answers to all your questions at the beginning. Nor will you always be asking all the right questions from the start. The goal of creating a plan is to organize all your ideas, thoughts, and goals into one area. Here are a few items to consider in this phase:

• ·   What do I want my business to look like five or ten years from now?
• ·   What are the two or three pain points of my current VAR business?
• ·   How will moving to an MSP model reduce those pain points?
• ·   What values of my current business do I want to protect?
• ·   What is my pitch to my current customers if I move over?

These questions are intentionally “big picture” because that is where you need to start before you dive into the details. Maintain the patience to answer these questions before you do anything else. You might find your reasons to become an MSP require you to give up too much. The time to ask these questions is before you begin the transition.

Simplify Your Offering

Many customers today are searching for simplicity, and your business offering should reflect that. You should be able to answer the following the questions:

·   What is my core service offering? These are the fundamental services that define your business such as remote monitoring or disaster recovery (DR).

·   What are my related services? These include newer or related services to your core offering. Mobile device management many fall into this category.

·   What are the services that differentiate your business? These are the services that set you apart from your competition while providing real value to the customer. For example, you may have a cloud security expert on staff to help give you that step up.

You might only have one service to offer in each bucket. That is OK. You can expand your services as you grow the business. The goal here is to offer a simple and cohesive solution to your customers. Do not make the mistake of dragging the customer into the technological weeds. That is for you to figure out behind the scenes.

Internal transitions and Team

This is one of the most difficult assessments you will have to make, but it might be the most important. The team you assembled when creating a VAR or LAR may not completely transition over to an MSP. One of the biggest changes you'll encounter while building a managed service provider business is that sales representatives need to learn how to sell services instead of products. Because services are intangible, your sales team has to adjust to pitches based on opportunity costs and the costs of downtime that your business could prevent, rather than just selling a product's features

Similarly, engineers need to be more conscious about billable and nonbillable hours. Engineers are natural problem solvers, and their instinct will be to solve employees' problems even if they're beyond the scope of the contract. While that can initially build up customer loyalty, it costs your business money. It can also become a problem later on if you need to start charging for the service. It's also important to have engineers who can up-sell and cross-sell services when they're working with a customer, rather than working only on the task immediately at hand.

You will not get very far as an MSP without effective processes. These include setting up standards for responding to technical support tickets, answering calls, documenting new services, and training new team members.

Creating teams of people whose skills complement each other is also important. The ability of your team to collaborate and share knowledge will help you resolve issues while maintaining an elevated level of customer service

Resellers who depend on large but infrequent payments will need to go through a transition period to adjust to more payments of lower amounts, and employees need to straddle the line between sales and engineering. When you are collecting a fixed monthly fee for managed services, you will need to hire efficient employees who can solve problems quickly. You cannot afford to have expensive tier 3 engineers solving issues on the front lines anymore.

External transitions

One of the hard parts about building a managed service provider business is making sure you don't lose your clients in the process. The MSP model is relatively new, and clients used to just buying and installing products may wonder why they should pay for monitoring and maintenance services they didn't have before.

It's also common for IT employees at your potential client to worry that they will lose their jobs to your services. Since companies generally want to keep morale high, even the perception of the threat of outsourcing can be a hurdle to signing a managed services contract. You should make sure IT staff understand that you will be complementing them and taking only the day-to-day tasks, letting them focus on longer-term project

You will also need to write a service-level agreement (SLA)that outlines your responsibilities in both general and specific terms. An SLA specifies what your services are and which devices at the customer's site you cover, as well as your client's obligations

Conclusion

Take it slowly. Pare down your offering to what you do well. And focus on nurturing a cohesive team. If you do those three things well, you will be on your way. Good luck!