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MSPs That Outsource NOCs, Help Desks: More Profitable?

It’s a classic debate: Should MSPs keep their NOC (network operations center) and help desk services in house — or should they outsource such services? There are strong opinions on both sides of the debate.

MSPs that keep such services in-house claim the approach allows them to maintain customer intimacy — and perhaps even uncover new sales opportunities during IT service desk support calls.

On the flip side, MSPs that outsource their NOC and help desk services often say the move allows them to focus far more aggressively on sales, marketing and customer acquisition efforts.

So which approach truly is the better business model? I’m not ready to declare a winner. But recent research from Service Leadership Inc. points to the outsourcing model. And more specifically, it leads MSPs directly to Continuum, which has an end-to-end MSP automation platform spanning RMM (remote monitoring and management), NOC, help desk and BDR (backup and disaster recovery) services. A Security Operations Center (SOC) for MSPs also is under development.

New Research Results

Service Leadership’s benchmarking results indicate that:

“Continuum’s partners are able to achieve greater profitability than other MSPs as a result of the company’s transformative business model…

…By comparing financial data from a random sample of 140 of Continuum’s partners in the Service Leadership Index® (S-L Index) to those in the S-L Index who do not use Continuum, the analysis illustrated the real, long-term effects of this business model to not only achieve greater overall profitability than their peers, but withstand downward market pressures.”

Does that mean MSPs can benefit from all types of outsourcing relationships? Not necessarily. We’ve all heard and read nightmare stories about outsourcing engagements that turn sour.

But anecdotal evidence suggests Continuum’s business model is mature at this point, particularly for MSPs that don’t have the budget or time to chase the latest technical hires. Indeed, Continuum manages more than 1 million endpoints for its roughly 6,000 partners, including MSPs servicing more than 60,000 SMB customers, the company indicated in June.

What Is Operational Maturity?

The other potential twist here involves operational maturity. As MSPs achieve greater Operational Maturity Levels, the result is typically stronger performance, Service Leadership indicates. But that pursuit often requires business and technology “know how” that many MSPs lack. By outsourcing to Continuum, MSPs can essentially shift material operational responsibility, financial risk, and management to Continuum for a flat fee.” The result is a “material advantage” for Continuum partners.

For instance, of the MSPs in the top quartile of the Service Leadership Index:

  • Continuum partners achieved gross margins on managed services that were on average 8 percentage points higher than their non-Continuum peers.
  • Among all MSPs in the S-L Index, Continuum partners recorded Adjusted EBITDA figures that were on average 7 percentage points higher than their peers using other platforms.
  • While the MSPs who did not use Continuum saw a decline in managed services margins of 4 percent from 2012 through 2016, Continuum’s partners saw their margins on managed services hold steady on average during that same period.

Various EBITDA profit growth figures also favored the Continuum partners.

Who Is Service Leadership?

Paul Dippell

Service Leadership Inc. CEO Paul Dippell

Admittedly, we’re all inundated by research reports from hundreds of consulting companies and independent advisors. But Service Leadership carries unique clout in the IT services market. CEO Paul Dippell has built and sold multiple MSPs over the past two-plus decades. And the Service Leadership team is widely know for its IT services benchmarks.

For Continuum CEO Michael George, the research appears to reinforce his company’s ongoing mantra, which typically involves freeing up MSPs to focus on sales and market — rather than chasing hard-to-find technical talent in areas as cybersecurity.

Entrepreneur Business Models

Continuum CEO Michael George

While I respect the Service Leadership findings, I’m also reminded of my our own company’s team-building experiences. I’m strong on content and the underlying technology platforms. My business partner Amy Katz is strong on business building, financial models, relationships and profit-centric growth. Neither of us ever mastered marketing and promotions — so we outsource those functions to experts we trust in that field.

In other words: We play to our in-house strengths, then fill in the gaps. For MSPs launched by technology professionals, the natural inclination likely is to focus on technology and then outsource some sales or marketing to third-parties. I’ve seen that model work though I certainly don’t have the type of real-world metrics that Service Leadership brings to the table.

For MSPs, I don’t believe one model fits all. But those Service Leadership data points are hard to ignore. They certainly favor the Continuum model that CEO Michael George and his team have been shaping, polishing and growing since 2011.

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